Purchase order financing is a type of funding that is based on purchase orders. Although it is similar to invoice factoring, it does have a few differences. If your business is struggling with cash flow to pay for inventory, purchase order financing may help you generate the cash to pay your sources before you receive money from your invoices. If you’re stretched thin on your credit limits, purchase order financing may be the right option.
How Purchase Order Financing Works?
Purchase order financing is good for B2B or B2Govt businesses that receive purchase orders. If you are required to pay a certain amount to the supplier to deliver goods, but lack the funds, the lender steps in and issues a letter of credit or a vendor guarantee for the amount needed to deliver the goods. The lender pays the supplier once the goods are delivered and accepted by the customer. The lender takes their money plus a fee. Your business fulfills delivery without having to manage the cash up front. Generally speaking, you’ll need to show a profit margin of 15% or more to get this funding. It’s also based on the creditworthiness of the supplier and the customer, instead of your business credit score. If you’re a goods-based business, this can be a good way to fund your business.
Benefits of Purchase Order Financing
- Your business can take bigger orders.
- Your credit with PO financing grows as your business grows.
- The funding company may be able to help with logistics and fulfillment because they have experience in the industry.
- Purchase order financing isn’t a loan, so you aren’t carrying more debt on your balance sheet.
- You can get up to 100% funding of your inventory cost.
- It’s easier to qualify for PO financing than traditional bank loans.
Contact Coastal Commercial Lending for more information about purchase order financing and how it can fit into your business.