Purchase order financing or PO financing is a frequently used option for businesses that use purchase orders to pay their suppliers. It is an effective and quick way to finance purchases, fulfill outstanding orders, and smooth out cash flow.
What is PO Financing and How Does It Work?
PO financing is essentially a cash advance that a small business owner receives on his/her purchase orders. It works this way:
Your company receives a large purchase order, and you decide that you don’t have the available inventory or funds to fulfill the order.
You determine the costs to fulfill the order by reaching out to your supplier and they provide a written cost proposal.
Having decided that you need PO financing, you reach out to a financing company and complete an application.
The PO financing company approves the financing application, and it pays the supplier.
The supplier delivers the goods to the specified customer.
You invoice the customer.
The customer pays the PO financing company.
The financing company subtracts its fees from the customer’s payment and then transfers the remaining payment balance to you.
Who PO Financing is Right for and When it is Right
PO financing is suitable for distributors, wholesalers, retailers, importers or exporters of finished goods, and outsourced manufacturers.
It is right when a business has a large spike in demand that will be difficult to serve and when your business is experiencing consistently tight cash flow. It can be very useful for startups seeking to fuel their continued growth and for companies desiring to reduce capital costs in shipping.
Benefits of PO Financing
The benefits include allowing a business to accept customer orders that it couldn’t otherwise fulfill. Additionally, this type of financing can be easier to qualify for than other types of financing. And it doesn’t require budgeting monthly loan payments.
Seek Expert Financing Assistance
Contact Monterey Commercial Capital, based in Neptune, NJ for custom financing solutions to meet your needs. We offer a complete spectrum of commercial finance programs to help you succeed.