One of the biggest thrills that you will get as a business owner is getting a large order from a great customer. The sort of order that lets you ring the cash register and take your business to the next level. Unless, of course, you can’t afford to pay your suppliers. Then you risk losing the client, the order and this big opportunity.
Going to the bank to try and get financing is often an exercise in futility. Unless your business has strong assets, three years of operating history and audited financials, there is little chance that a bank will provide financing such as a business loan, line of credit or letter of credit. However, there are other alternatives. If you own a company that is a distributor, reseller, importer or wholesaler you should consider purchase order financing.
Purchase order financing provides you with the necessary funding to pay your suppliers, deliver the products and ultimately make the sale. As opposed to most bank financing, it is relatively easy to qualify for. The main requirement is that you have purchase orders from good customers, make at least $50,000 a month in sales and have profit margins of 20% or more.
The transaction is relatively simple. Once you know you’ll get the purchase order, you set up an agreement with the financing company. Once the agreement is in place, the financing company will take care of paying your suppliers and ensuring proper product delivery. The transaction is settled once the customer pays for the product, usually 30 or 60 days after delivery.
Usually, purchase order financing is used in conjunction with invoice factoring. This enables you to streamline your cash flow and reduce your costs, since invoice factoring is cheaper than purchase order funding.
Purchase order funding lets you make sales that you cannot afford to make (or lose!) and provides you with the financial platform and backing to grow your company.
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