Is Purchase Order Financing Right for You?

A business that is growing too rapidly is a wonderful problem to have. Believe it or not, rapid growth can cause a few headaches and you may need some short-term financial help. If you find yourself in this situation, consider purchase order financing.

So, what exactly is purchase order financing? In short, this type of financing allows you to receive funds upfront to cover the costs of orders before customers have actually paid for them. This is usually beneficial for wholesalers, importers, exporters and other distributors of goods. Here are a few things to consider when deciding if purchase order financing is right for your business.

You Will Recieve Borrowed Funds Quickly

Traditional loans can take weeks to appear in your account after an already lengthy application process, and that’s if you’re even approved. If you need access to funds quickly, purchase order financing may be a better option, as many lenders make funds available within 24 hours. 

You Will Steady Your Cash Flow

These borrowed funds will take some financial strain off of your business, allowing other funds to be reallocated for expenses often seen by rapidly growing businesses such as expansion, hiring new employees or advertising for your business.This ability to put extra capital toward growth is a wise way to plan strategically for future development.

You Won’t Pay Loan Installments

Rather than paying a monthly installment as you would with a traditional loan, your loan is paid as your customers pay their invoices. This is convenient, as you won’t have to plan for a substantial monthly payment. On the other hand, you’ll be processing orders without seeing the income directly, which can make things difficult.

You Won’t Deal With the Customer

For some this may be a pro, for others this may be a con. The upside to this scenario is that your lender will be the one collecting payments, and if a customer fails to pay, they’ll deal with it directly. The downside is that if your business relies on a cordial business-to-consumer relationship, a third party collecting payment may appear as a red flag. However, for many businesses, not having to worry about collecting on late or failed payments is reason enough to explore purchase order financing.

For many types of businesses, purchase order financing can be a great option. As with any type of lending, be sure to do plenty of research and discuss with your lender whether or not this type of financing is right for you.