Recent surveys have shown that as many as 57% of businesses believe that expert supply chain management practices are crucial to their competitive advantage. Technology has allowed companies to manage their orders and inventories in new and innovative ways. Many small businesses, however, feel like they can’t use these new practices because of their cashflow position.
But you don’t have to be limited by your cash inflows. With purchase order financing, you can take on more orders than you have stock, supplies, or cash to fulfill. Keep reading this handy guide to learn more about this financial management trick.
Purchase Order Financing
Purchase Order Financing is a type of short-term lending that helps businesses come up with cash for their suppliers.
You take customer orders (or use data to estimate your future sales if you can) and a third-party lender pays your supplier for the goods. Some PO financiers even pay all the costs involved in delivering the product to your customers.
How Purchase Order Financing Works
There are many different ways a company can structure purchase order financing. But dedicated purchase order financing companies have a fairly standardized system. How does purchase order financing work?
First, the customers order goods and the business assesses the costs with their supplier. The financing company will then pay the supplier who will send the goods to the customers.
The business invoices the customers and sends copies of the invoices to the financing company. The customers then pay the financing company. Finally, the financing company deducts its fees and sends your business the rest of the money owed.
As with other types of lending, the main “cost” of purchase order financing is the interest the company charges. Most purchase order financing companies charge between 1 and 6% per month.
The best purchase order financing company is not necessarily the one that charges the lowest interest rate. They should also have a track record of being reliable.
How Short-Term Financing Can Help Your Business
Purchase order finance loans can be easier to qualify for than other types of financing, but that’s not what makes them great. One of the main purchase order financing benefits is that it allows you to take as many orders as you like without ever experiencing stock-out costs.
Another benefit is that the financing company calculates the payments for you, which eases the burden on your admin staff.
Explore the Best Financial Management Practices
Purchase order financing can be a great way to grow your small business. By allowing you to take more orders than you would have managed on cash flow alone, you free yourself up to focus on growth.
Purchase order financing is easy to qualify for, you just need to find the right financing company. You can then take as many orders as you want without worrying about stock-out costs.
If you want to learn more about purchase order financing and other financial management tricks, check out our blog today. We have great news, information, and guides to help inspire and educate budding small business owners.Â
Also Read: What You Need to Know About the Costs of Invoice Financing
