If you are a new business, then your first purchase order can be an exciting event. A purchase order is when a customer agrees to buy a large quantity of something from a supplier at a certain price point. A purchase order is essentially the opposite of an invoice. While sellers send invoices to their customers, buyers send purchase orders to their suppliers.
The problem with purchase orders is that when a small business gets a purchase order, they may not have the liquid cash needed to fulfill the order, especially if they have multiple purchase orders in progress.
What is purchase order financing?
The solution to this problem is purchase order financing, or PO financing. This is an arrangement where a third party agrees to give the supplier enough money to fund the customer’s purchase order. Sometimes purchase order companies will finance the entire order, while other times, they will only finance a portion of it.
When the order is complete, the purchase order financing company will collect the payment directly from the customer, subtract their fees, and then send the balance of the invoice to the original business.
There are pros and cons to financing purchase orders, but the biggest benefit is that purchase order financing companies are willing to fund suppliers even if they have less than perfect credit scores. These lenders are much more concerned with the worthiness of the customers who sin the purchase orders over the supplier, making them much easier to obtain for small businesses.
If your small business is concerned about meeting your customers’ needs, then purchase order financing could be an ideal solution for you. Not only does this take the stress out of filling purchase orders, but it also allows you to take more purchase orders and grow your business without worrying about cash-flow problems every month.