Purchase Order Financing Explained
In the current economic climate, it can often be difficult for businesses to raise capital. The problems brought on by the credit crunch and the deflation of the property bubble (as well as the financial destruction that followed), meant that the massive financial institutions to which businesses used to turn for funding are now pulling in their horns and lending a great deal less than they used to. Whilst this is good for the economy it is not so good if you are a business in search of capital. Thankfully, there are still some ways of raising funding, such as government grants, home equity loans, merchant advances and outside investors. In this article we will briefly look at one other source of fund raising, known as Purchase Order Financing.
Purchase order financing is a clever and alternative way for businesses to raise some capital in a short space of time. It is extremely useful when the company is facing a low cash flow reserve due to a number of companies paying 30 or 60 days after delivery. Such problems are especially acute for manufacturing businesses who frequently have to deal with the goods having gone out, but the money not coming in. Purchase Order Financing rectifies this situation by freeing up cash flow for important business expenses and has the added advantage that it will not show up as a debt on your books – this in turn means you are still eligible for more financing.
The way to get approved for Purchase Order Financing is simple – first of all you have to get your normal purchase order from your customer; then you need to get a regular and reliable supplier for your products, with whom you will then place the order. So far, so good. Once you have all this in place it is possible to apply for Purchase Order Financing; all you need to do is show the purchase order to the financing company and then they will simply open a line of credit to your supplier. Once the goods are shipped and the customer has sent the payment to the financing company, you will be paid the profit on the deal. Simple as that.
There are hundreds of companies that offer Purchase Order Financing and purchase order factoring – all you need to do is search on Google to find a reputable company and then line up your orders to get started. You never need to miss out on business again because of cash flow problems!