The Benefits of Purchase Order Funding for a Small Business
Purchase order funding is a cash flow solution to help small companies with limited resources meet their production costs. This funding option comes with numerous benefits for businesses with insufficient working capital to pay for labor and materials necessary to complete large and profitable orders for their expansion.
Growth Opportunities
Although many businesses hope for large orders to achieve growth and expansion, they often cannot meet the costs of supplies and other expenses to fulfill them. When companies do not have an adequate reserve of funds to initiate large orders, they may have no alternatives other than to turn them away or risk damaging their reputations. However, creditors can advance money in exchange for a percentage of what end-users pay for the goods or services.
Flexible Credit Requirements
Traditional lenders, including banks, do not offer start-ups financing because new businesses cannot demonstrate a history of debt repayment or steadily increasing revenues, thereby posing more significant risks for lenders. As a result, start-ups have limited options for obtaining the working capital necessary to complete client orders after using their cash reserves to meet other essential expenses.
A significant benefit of purchase order funding is that it does not require a business to operate for a specific period. Instead, lenders are willing to advance funds to companies based on a perception of the companies’ excellent prospects for success.
Hands Off Invoice Collection
Finance companies that help other businesses fulfill their orders also collect payment from end-users for the goods and services their funds make possible. In addition, they handle all accounting, calculating their fees before sending the remaining profits to the business that takes the order.
A Business’s Credit Is Not a Consideration
Purchase order financing is unlike traditional funding because it is not dependant on a business’s high credit score. Instead, the funding company is concerned with a business’s ability to use its funds to fulfill its order. It also considers the credit of the customer placing the order and bases its financing decision on the likelihood of receiving payment from the customer.
Helps With Business Planning
Business owners benefit from using purchase order financing to ensure they can fulfill the orders they put significant effort into obtaining. Also, business owners who know their companies can satisfy significant demands when they materialize can make accurate financial projections.
Purchase order funding is an excellent way for start-ups and small businesses to meet their revenue and expansion goals.
