Purchase order financing is a form of financing that involves getting money for purchase orders that have been placed but not fulfilled. It usually is offered to businesses that are involved in wholesale or distribution. What is involved is that your company gets a purchase order, and you then go to a financing company who will give you the money to buy the needed inventory. Then they will collect on the invoice due for that purchase order. When used correctly, this type of financing can help you with business growth.
Frees Up Capital
One of the best things about purchase order financing is that it will free up your capital to be used in other ways. You can reinvest capital to help expand your company, bring in more customers or do whatever you need to while still being able to keep up with your current orders. In addition, you have the chance to grow capital to help increase the worth of your company, which is essentially what you want to do in order to encourage business growth.
No Credit Required
Because purchase order financing is not a loan, you don’t need credit to use it. In fact, with this type of financing, it is actually your customers’ credit that the financing company will be looking at. This is because it is the customer who will pay off the financing. If your customers are prompt with paying their invoices and you haven’t had trouble with collections, then you are likely to find it easier to get PO financing. This allows you to get the money you need when you need it so you can focus on growing your business.
No Loss of Equity
One of the disadvantages of a loan is that you usually have to put something up as collateral. This means you have to risk business assets or even personal assets to get a loan. Since PO financing is not a loan, you aren’t risking any assets. You don’t have to worry about losing a much needed piece of equipment or some personal property. This allows you to focus on growing your business and not having to worry about replacing an asset that may have been lost on a bad loan.
Purchase order financing is an option that allows you to get the money you need with fewer risks than a loan. It also enables you to focus on business growth because you can free up capital while also not risking assets or worrying about building credit to secure the financing in the first place.