4 Reasons Why Small Businesses Should Use Purchase Order Financing

Small Business Finances

As a growing company, receiving a large purchase order is a big accomplishment. But, as with other big opportunities come to another challenge:

How are you going to finance the order without risking your financial stability? Without a solution, you’ll be forced to turn the order down and risk losing customers in the process. Luckily, small business owners have the option to ask lenders to finance purchase orders contracts.

Purchase order (PO) financing is one of the best financing solutions that many small businesses like resellers, distributors, and importers commonly make use of. Sometimes, businesses like these experience cash flow gaps that make it harder for them to fulfill their customer’s orders.

Instead of turning customers away, entrepreneurs can apply for purchase order financing to help them get the products they need to complete the job. This is a better alternative for companies since they won’t be forced to exhaust all their bank lines or they need.

Essentially, when you apply for PO financing, the lending company will pay for the manufacturing and shipping cost (or part of it) of the products your clients have ordered. However, unlike traditional funding options, the lenders won’t wire the money to your bank account. Instead, they will pay the suppliers directly on your behalf.

If you need more reasons to apply for PO financing, here are five of them:

1. You’ll Build Your Business’ Reputation

New businesses receiving large bulks of orders from customers often don’t have enough cash flow to cover the cost of the expenses. The budding business owner knows that if they turn down these orders, it could create a downward spiral on their sales. Eventually, if they continue declining new orders, it will create a bad image for the company which could ruin the business reputation they worked hard to build.

The business’ ability to fulfill these orders on time directly reflects on their level of efficiency and reliability. For a small fee, the PO financing company can help you get the products you need so you can gain the trust of your customers as well as attract potential clients in the future.

2. Allows Your Business to Grow

PO financing allows you to take on more projects without you having to worry about where you’ll get the funds. As a growing company, you need to accept larger projects as it’s one of the most effective ways to scale your business. When you have a secure funding resource, you won’t have to limit the projects that your company takes in and you can proceed with it with confidence.

Since purchase order financing establishes your reputation for being able to deliver goods on time, it opens up more opportunities for your business. New and existing customers may reorder from you and as more and more purchase orders come in; the financing company may also grant you access to more funds, depending on your business needs.

3. It’s Cost-Effective

Applying for traditional business loans from other banks may require the borrowers to present collateral. The application for bank loans may also take longer making this option less accessible and feasible to small and medium-sized businesses needing immediate access to cash.

Purchase order financing, on the other hand, can offer their borrowers competitive rates. Lenders won’t also require collateral for the loan. When you’re approved of a PO financing, you will have access to the funds needed to fulfill customer’s orders anytime.

4. It’s Easy to Apply and Qualify For

PO financing is a great loan option for businesses with less than ideal credit standing such as start-ups. Lenders typically don’t look at the company’s credit standing but focus more on the creditworthiness of the customers. This funding resource allows business owners to get access to quick cash to deliver goods to their customers and continue to scale their business even in times of cash flow constraints.

The  are also less complex. All you need to do is to send the purchase order along with the supplier’s estimate of the costs to the lending company. Once approved, the lenders can finance as much as 80% to 90% of the total cost of the purchase order.

Final Verdict: Should You Finance Purchase Order Contracts?

When your company receives large purchase orders, you have to make sure that you have access to enough capital to avoid turning down clients. Applying for loans to finance your purchase order contracts is one way to make sure that you can supply whatever it is your customer needs.

With PO financing, you’ll gain access to the cash needed to complete orders without hurting your cash flow. With the extra boost, you’ll have access to resources to make sure that you will be able to take your business to the next level.