Small businesses sometimes receive large purchase orders that they find difficult to fulfill due to insufficient financial resources. Under these circumstances, they face a dilemma. They do not have the funds to prepay for the goods, but if they pass on the order, they risk losing the client to one of their competitors. A solution to this difficult situation is purchase order financing, which allows you to accept these significant orders while keeping your company’s cash flow strong. Here is some important information about this method of funding.

How Purchase Order Financing Works

After your application is approved for purchase order financing, the company that is funding the order sends the payment directly to the supplier, which then delivers the product to your client. The transaction is complete once your client pays for the goods. Some businesses that offer their customers terms of from 30 to 60 days combine purchase order financing with invoice factoring so that they receive payments quicker.

Advantages of Purchase Order Financing

Often small businesses find it difficult to obtain loans or lines of credit from traditional banks, and purchase order financing provides an alternative funding method. You can receive the financing you need quickly, and it is also available to new businesses as long as you have creditworthy clients. Best of all, it enables you to take on large orders that you would otherwise have to turn down, and these significant orders can help to grow your business.

Requirements for Purchase Order Financing

To qualify for purchase order financing, your transactions need to be for the resale of completed products, and these orders cannot be for guaranteed or consignment sales. The transactions should have values of at least $100,000 and gross margins of approximately 25 percent. Your customers must have good credit ratings, which demonstrate that they will be able to pay for the orders.

For more advice on funding large orders with purchase order financing, contact Monterey Commercial Capital.