New and small businesses try to position themselves for growth, but they do not have the financial resources available to take on large customer orders while simultaneously maintaining daily operations. For businesses in these situations, Purchase Order Financing (PO financing) is often the correct solution to bring their businesses to the next stage in the development timeline.
How PO Financing Works
PO financing allows business owners to take on customer orders that are much larger than usual by covering the cost of production and delivery. When a large order is received a business gets a cash advance. When the invoice is generated, the company providing the PO financing takes over, and delivers the bill of sale to the end customer. When the customer pays, the PO financing company deducts the amount of money that was advanced to the business, plus any agreed upon fees, and the remainder is given to the business as revenue.
Financing That Is Debt-Free
There was a time when business owners would resort to traditional bank loans in order to cover large customer orders. The problem with that solution is that the time to process a bank loan application does not usually line up with time-sensitive customer orders. Additionally, bank loans involve taking on additional debt, which severely impacts a company's credit rating and hampers chances for additional funding until the loan is repaid in full. PO financing, on the other hand, is considered a sale on future receivables, and as such does not show up as debt on the balance sheet.
No Credit Check On Your Business
PO financing is also not on the credit rating of the business, as it is ultimately the end customer who is supplying payment on the invoice. This sets PO financing apart from traditional bank loans that require a healthy credit rating before they will even consider a business loan application for working capital. It should be noted, however, that the financing company may run a credit check on your customers, to see if they are in good standing to pay for a large order.
PO financing is an ideal solution for construction, manufacturing, transportation, IT, or any other industry where businesses can benefit from growth capital. This form of financing allows businesses that are poised for growth to take on larger orders and reap the rewards of revenue that can be put toward taking the company to the next level of success.