Purchase Order Financing to Improve Cash Flow
Purchase order financing, or PO financing, can help small businesses and startup companies who may be having a difficult time filling large orders. Companies use purchase orders to record orders from their customers. These purchase orders, create a contract between a company and their customer. It means that the customer promises to pay after the products are delivered. Because this arrangement creates a contract, it makes the purchase order valuable to companies known as factors. A factor can fund a purchase order from a company and provide them with the cash they need to produce and fulfill their order.
What is PO Financing?
Purchase order financing is a short-term financing method used to cover the cost of manufacturing or purchasing of goods that have been pre-sold to customers through a purchase order. Businesses then send invoices to their customers, who send their payments directly to the PO financing company.
The advantage of PO financing is that it is much faster than traditional financing and it’s your customers’ creditworthiness that is considered not yours. Additionally, PO financing is not new to the business world. It is a very common tool for many businesses in a variety of industries.
PO Financing to Fuel Sales Growth
Purchase order financing is an often overlooked way to get the cash you need to grow your business. A purchase order signifies a promise to pay and can be used to obtain the cash you need to fulfill your orders. By financing your purchase orders with a PO financing company, you will have the cash to fill new orders. PO financing for sales growth can be a great option for many growing businesses.
How PO Financing Works
Imagine receiving a purchase order from your best customer for goods you don’t have in stock. You need to either manufacture the product or purchase it from someone else, but you don’t have the capital to do either. What are you going to do?
If you decline to take on the new order you risk losing the new customer, which could lose a long-term earning opportunity for your company. Universal Funding offers a solution to this cash-flow dilemma: Purchase Order Financing.
- Customer Orders: Your receive purchase orders from your customers.
- Cost Estimate: You provide the cost breakdown of the purchase order to Universal Funding including materials and/or labor.
- Funding: You and or your supplier is paid by Universal Funding. This may be for supplies, materials, and/or labor.
- Order Fulfilled: You and/or your supplier fulfills the order and your customer accepts the goods.
- Invoicing: You invoice your customer for the fulfilled order. You then submit your invoices to Universal Funding for factoring.
- Invoice Factored: The proceeds of factoring pays off the purchase order funding and the remaining advance goes to you.
- Customer Pays: Your customer pays their invoice directly to Universal Funding.
- Final Close-out: Universal Funding deducts the advance and the fees, then pays you the remaining balance.
Now the order has been fulfilled without taking on more debt and you earn the profits instead of having to turn down the business.
If you’d like to learn more about PO financing, give us a call today at 800.405.6035 or complete a rate form and a factoring specialist will get in touch with you right away.