What is purchase order financing
Small business owners relying on purchasing inventory to fulfill a purchase order may find cash flow a problem. That's where purchase order financing comes in. PO financing is short-term funding that allows you to finance your inventory purchases, using the money from the sale of the goods to repay the loan.
It's an effective way to improve working capital management without relying on a traditional lender. And because PO financing is based on your future sales, it's often easier to qualify for than other types of credit.
The benefits of PO financing
If you're looking at PO financing, here are several benefits to consider:
- It allows you to support business growth in the absence of liquid capital.
- It will enable you to cover your costs without waiting for customer payments.
- It can help you grow your business without taking on personal debt. This is because the financing is secured by the purchase order itself, not by your personal assets.
- It allows you to maintain a healthy working capital balance especially when faced with unexpected expenses or slow-paying customers.
How it works
In a nutshell, you work with a lender who provides you with the funding you need to pay for your supplies or inventory. The lender then send an invoice your customers and collects payment from them directly. This allows you to free up capital that you can use to invest in other areas of your business.
How to get started with purchase order financing
If you're thinking about using PO financing, you're not alone. But there are a few things to keep in mind.
First, make sure you understand the terms of your loan agreement.
Second, be aware that this type of financing can be expensive, so it's essential to compare rates and fees from multiple lenders before making a decision.
Finally, remember that PO finance can be risky, so ensure you only work with a reputable lender.