How to Amplify Your Cash Flow with Purchase Order Financing
Are you a B2B company with a cash flow problem? Do you have a large, custom order but not enough inventory to fill it? If so, purchase order financing might be the solution you’ve been looking for. PO financing is one way that businesses can increase cash flow and fuel growth.
Here’s how PO financing might work for you.
Who is Purchase Order Financing For?
PO financing is ideally suited for business to business, or B2B, companies who are in the midst of a growth period, or a seasonal upswing in sales. These are businesses who sell a physical product directly to other businesses, or the government, and are taking in orders larger than the resources on hand to fulfill them. This type of financing is also best for businesses with a profit margin of 15% or better.
How Does Purchase Order Financing Work?
When your company receives a large order that you don’t have the inventory to cover, PO financing is used to cover the costs of that inventory. Basically, the financing company gives an advance on the invoice to pay the supplier so that you can fulfill the order, paying the financing company anywhere between 1.8 percent to 6 percent after the order is completed. This cost is for the first month, with rates and additional costs accruing for each month thereafter. It is important to note that business to customer, or B2C, businesses are not eligible for PO financing.
What are the Benefits?
There are multiple benefits associated with purchase order financing. As opposed to traditional term loans from a bank, the cash from PO financing is usually available very quickly, sometimes within days. Also, the credit lines from this type of financing can be substantial, depending on the size and number of purchase orders your business has. Next, the creditworthiness of the customer is more important than that of the business owner, making this type of financing more achievable for new or small businesses with little to no established credit. Finally, PO financing gives small businesses access to working capital, allowing them to better fund their business and propel business growth.
If you need to amplify your B2B business’s cash flow in order to achieve growth, financing using your outstanding purchase orders could be the best option. With purchase order financing, your small business can cover orders that would be otherwise impossible to fulfill, enabling increased profits and even more cash flow in the future.