Purchase Order Funding Overview
Knowing the ins and outs of purchase order financing is an asset to almost any small or medium sized business owner
. In the sections below you will learn just exactly what purchase order financing is, the benefits, drawbacks, who can benefit the most from it, and would be likely to qualify for it.
What is purchase order financing?
Purchase order financing is another way to get a loan for the capital you need to finance the supplies, production, and shipping of a product after you have received a purchase order from a buyer. You can pay your invoice to the company who provided you with funding, once you have produced the finished goods and are paid.
Who can benefit from purchase order financing?
- Purchase order funding is great for small to medium sized businesses who usually do not have the funds for large orders that could sky rocket their sales and turn their product into a household name. Image pitching your product to a major retailer, receiving an order from them, and then not being able to produce the goods needed because you are short on funds. purchase order financing could save you from this heart-breaking, and business-breaking, blow.
What are the drawbacks of purchase order funding?
There are few downsides to receiving purchase order funding, however, there is one major qualification that could potentially stand in your way. Once a company grants you funding, they assume they will be paid after your customer receives the finished product and pays you. Due to this type of drawback, many funding companies will check the credit of your buyer(s) to be sure that you will not get ripped off and be left without the money to pay your invoice. Purchase order funding companies are not only taking a chance on you, they are taking a chance on your customers as well. They are the ones with the real risk if the deal fails. Knowing that your customer is credit worthy gives the company the peace of mind to lend to you.
In the world of loans and financing, purchase order funding may be a small business's best ally. They will usually have repayment conditions that allow time for production of a product and it is the fastest way to receive financing without losing any investment in your business. Also, since they will check into the credit worthiness of your buyers, they may save you from producing a product for a deadbeat buyer. All in all, purchase order funding is a way to finance a large order that may get your product into the hands of a big time retailer.
by: Martha Orem
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