Can Purchase Order Funding Help Your Small Business Grow?
Harnessing the value of your company’s purchase orders can prove to be a great use of your resources. Here are some things that business owners should know about this funding option.
Scale Up Your Operations
If your business is seeing more demand for your products than you can currently meet, purchase order funding could be an excellent vehicle to step up your operating capacity.
If you’re actively investing in outreach and development initiatives right now, you might be spreading your capital too thinly. When you’ve got capital and assets tied up in growth, nuts and bolts-type expenses can be tricky to manage. Purchase order financing may enable you to afford the practical expenses associated with production and fulfillment that you need to keep your sales volume up.
Order fulfillment can be costly, and putting too much of your resources into manufacturing costs or distribution costs could be problematic. Using the prospective value of purchase orders to attain financing will make filling them more feasible. Once you’ve used this funding model to increase your output, you can continue utilizing it to ramp up your operating capacity.
Get Funding With Less Risk
Many avenues to get funding can set small businesses up for hard times later down the road. If you were to take out a large loan with a high-interest rate, meeting your payment obligation month after month is bound to get tough when times get lean. Purchase order funding is less risky because you have greater assurance of being able to meet your payment obligation.
Once you finalize the transaction that you utilized funding to complete, you should be able to return the full value of what you borrowed in its entirety. In fact, you may not really be borrowing at all. Under some agreement structures, you’re simply assigning a part of the proceeds of a transaction to the funding company that facilitated it.
Overcome Credit Obstacles
If your company’s credit doesn’t pass muster when you apply for traditional lending or financing options, then having purchase orders could give you a tremendous advantage in assessing working capital. By showing funding companies that you’ve got customers ready and waiting, they’ll see a lot less risk in working with you.
In effect, using purchase orders to obtain funding can help you surmount issues with creditworthiness and make the most of your resources. Being able to accommodate large orders may ultimately give your net revenue a significant leg up.