Not every business begins with good credit or a stable financial foundation. The company may not be able to finance the start of production when they receive a purchase order from a client. This can delay production until the client pays in full, losing the company credibility and valuable customers. Purchase order financing provides a solution to this problem.
Who Should Receive Purchase Order Financing?
Purchase order financing is offered by lenders who are willing to pay for the cost of production with the client’s purchase order as a type of guarantee. It’s usually a last resort for businesses, as it’s both expensive and requires your customers to have a decent credit score. However, this type of financing may be helpful to new businesses who haven’t built up their credit or cash flow.
The Purchase Order Finance Process
The purchase order financing process usually involves at least four separate parts:
- The Order: The company receives a purchase order from a creditworthy client with a good payment history.
- Negotiation: The business owner will need to contact the financer and make contractual arrangements for them to pay a portion or for the total cost of financing. Production begins of the items contained in the purchase order.
- Delivery: The finished product(s) are the delivered to the client, and the business bills the client for the completed work.
- Repayment: The clients will usually pay the financer directly. After the deduction of a fee or percentage, the purchase order financer sends the remaining balance back to the business.
Exploring Your Options
The process if both complicated and expensive, leaving many business owners looking for a better way to finance incoming purchase orders. Fortunately, there are a number of lenders who have relaxed credit standards that will be willing to work with small businesses.
Reach out to Skybridge Capital Group for expert advice on your financing issues. You can trust them to point you in a direction that will grow your business and improve your cash flow capabilities.