Despite the rise in recent years of both factoring and purchase order financing solutions, many companies remain confused about exactly what sort of benefit each service provides. Others often think that both are mutually exclusive. The reality is that line of thinking couldn’t be further from the truth. In fact, both factoring and PO funding are meant to work hand-in-hand to help distributors achieve that “Holy Grail” of service benefits: lower transition costs, increased inventory, and higher sales.
- You work with your client to structure a deal for products to be sent from your supplier. Your client’s purchase order covers both your acquisition costs as well as your profit margin.
- PO funding gets you the funds needed to pay your supplier at a reasonable rate per the time needed in order close the transaction.
- Once your client has received his or her products, you send out the invoice to your customer and to your factor. The factor then advances a percentage of the total invoice, allowing you to pay your vendors in the supply chain.
- Your client sends payment made out to you to the factor for processing. The remaining percentage on the invoice, amount minus the factoring fee, is processed back to you.
Savings Over Time
On a single transaction, the amount saved through a combination of PO funding and factoring may only be a few dollars compared to the interest you have to pay using only PO funding while waiting for your client to satisfy his or her invoice. However, over time, those individual savings amounts start to accumulate, resulting in tens to hundreds of thousands of dollars in retained revenue. Figure in the added benefits of factoring, such as background checks on new clients and credit protection, and the benefits of combining PO funding and factoring become much clearer. Using these two financing methods together is great for companies experiencing healthy growth in production output.
The top receiving factoring companies are those that are able to simply and accurately paint a clear picture of every benefit that their services provide. We here at Universal Funding make it our goal to ensure that you can clearly see how incorporating both PO funding and factoring can help to save you money, allowing you to improve your operations in other areas. For more information on our service packages and to receive general rate information, take a moment to fill out our online rate form with some basic information about your company.