Business Growth With Purchase Order Financing
Starting out in business is rough, especially if you manufacture goods to order. Lenders are less likely to approve loans for startups or small businesses which rely on orders for profits if those orders are not coming in or being completed, but supplies are needed to start projects and bills will not wait until you get paid for the work you have done. One option to fuel your business growth is purchase order financing.
How Does PO Financing Work?
PO financing works like an advance on the invoice and is designed to help you pay for the supplies, equipment and labor needed to complete a project while still giving your clients time to pay. Chances are that you draw up a purchase order with your client which outlines the projected cost in supplies and labor for the project in question. This order is then refined into an invoice once the item is made and sent to the client. You can take your purchase orders to online lenders and fill out an application for an advance, usually approved in less than a day. Once you have the funds, you can purchase the needed supplies and repay the advance when the client pays you.
Who Can Use It?
Not every company can take advantage of purchase order financing, but those which manufacture goods, have creditworthy clients and earn a profit margin of at least twenty percent on the PO have the option. The creditworthiness of your clients is considered because they are the ones paying on the invoice, and therefore paying on the advance.
How Does It Help With Business Growth?
The biggest way that PO financing can help with business growth is in allowing you to take on more clients with large orders than you are currently capable of. An increase in the size and number of goods you manufacture comes with an increase in needed supplies which cannot always be taken from your working capital. By getting an advance, you do not have to turn down these clients while increasing your future capabilities.
Purchase order financing is a good way to get the money you need for manufacturing orders without straining your cashflow or waiting to be paid for work already done. This funding option works like an advance and takes the creditworthiness of your client into account as well as your profit margin on the goods manufactured. You can use this option to fuel business growth by taking on larger orders with upfront costs you would otherwise have to turn down.