The Basics and Benefits of Purchase Order Financing

If your business has ever struggled to find the working capital necessary to handle incoming purchase orders, you may be looking for a short-term funding solution. Purchase order financing could be the answer to your needs. Understanding how this type of financing works and what its benefits are will help you to make a more informed decision about your business funding.

How It Works

PO financing is essentially an advance on a purchase order to help you pay for supplies and other expenses. It may be offered in the form of a letter of credit against the transaction or production financing if you are the original manufacturer.

Since the advance is secured against your purchase order(s), you are likely able to get lower rates and better terms compared to credit-based lending. This system is similar to invoice factoring. However, PO financing is only available for goods-based businesses. Additionally, it lets clients borrow before an invoice has been generated.

Typically, PO financing is used to deal with the upfront expenses of fulfilling an order. However, sometimes businesses use it for other, secondary costs that may be making their purchase order deliveries more challenging. Some businesses even use it to outsource their collection process.

The Benefits

The most significant benefit of PO financing is that it provides your business with money to fulfill orders. These are a few of the other benefits:

  • There are high loan-to-value ratios available.
  • It is not a loan, so it doesn’t appear as a liability on the balance sheet.
  • You can have the confidence to take on large or unexpected orders.
  • You can receive more favorable terms compared to other forms of short-term funding.
  • Businesses can qualify even with little or damaged credit.

You may want to use PO financing because your balance sheet is in poor shape and you can’t take on any more debt. Another common reason is that you are experiencing significant growth and your other financing can’t keep up. Whatever your reason for needing financing, using this unique vehicle can help you to ensure your business’s ability to always deliver on purchase orders.

Get Started

Learn more about purchase order financing and its benefits. This may be the key to your business’s ability to confidently take on new orders. With this financing backing your operations, you can more aggressively bring in new orders without having to worry about funding their fulfillment. Take advantage of PO financing today.