When small businesses receive large orders, they often face a dilemma. Fulfilling the orders can have a dramatic positive effect on their company growth, but they may not have sufficient funds on hand. Approaching a traditional bank is not the answer, because these financial institutions provide loans only after thorough reviews of your business’s assets, management, sales records, and other factors. One viable solution in this situation is purchase order financing. Here is some important information about this funding method.
Qualifying for Purchase Order Financing
To qualify for purchase order financing, your company should buy and resell products but not manufacture the products themselves. Your suppliers should be able to prove that they are in good financial condition. Your orders should generally be for a minimum of $100,000, non-cancellable, and without consignment.
The Process of Purchase Order Financing
When you apply for purchase order financing, you first submit the purchase order, information about your supplier, and other details to the financing company. After approval, you sign a contract. Your supplier receives most or all of the payment directly from the financing company. Although, you also may need to contribute a portion of it. The supplier ships the products to your customer. You then invoice the customer and await payment.
Benefits of Purchase Order Financing
It can be devastating to have to turn down orders due to your company’s lack of resources. However, if your business meets the qualification requirements for purchase order financing, you can accept orders that you otherwise would not be able to afford to fulfill. This type of financing can be quickly set up. It allows you to speed up the growth of your company so that it will eventually reach a stage where it will qualify for other means of financing such as a line of credit.
For more advice on using purchase order financing to grow your small business, get in touch with Jasema Capital.