PO Financing

Purchase order financing is a great option for businesses that need money to fulfill a contract or order. It can help small businesses who do not have the funds to keep a lot of inventory on hand still be able to offer goods and services to their customers.

What is Purchase Order financing?
Purchase Order Financing is a loan or advance, secured by a purchase order or contract. The purchase order secured money that is then used to pay for inputs, raw materials, packaging, goods for resale, etc., needed to produce and ship a product or deliver a service. In other words, the company gets the order, then gets financing to pay for the stuff they need to fill the order, using the order itself as the collateral.

How does PO Financing work?
There are six basic steps for PO financing. The first is the business has to get a verified purchase order or contract. It works best if the customer they get the purchase order or contract from has a good credit history and is credit worthy. Next, the company is going to estimate their costs for producing and delivering the product or service they have the purchase order for. Then are then going to approach a lender, asking them to finance the amount they need to fill the order. They will offer the contract as collateral, showing that the loan is secure, as they will be paid for all the goods or services that the loan will help pay for. The lender will then evaluate the credit worthiness of the customer who has issued the purchase order, and determine if they actually have the funds to pay for the contract they have entered into. If they feel that they are sufficiently credit worthy to meet the contractual obligation, it is likely the lender will approve the loan. Then, a percentage of the invoice is funded by the lender, which allows the company to produce and deliver on the goods or service, and issue and invoice. When the customer pays the invoice, the lender is paid principle, interest, and fees, and the company gets the rest.

Why should companies consider PO Financing?

1. It's not a loan- Not exactly, it is more like an advance. They already have a contract for the money to come in, so they get an advance on that contract.
2. Pays your supplier- It means that your business has the money needed to pay suppliers for the goods needed to fill your orders.
3. Allows you to take on big jobs- Many small companies can't do this because they just do not have the resources to purchase everything up front to handle a big job. PO financing allows them to do so.
4. Includes collections- The lender will also act as the collection agency should the customer not pay on the purchase order.
5. Doesn't require A-1 credit- The only credit that matters is that of the customer, which means the business credit is not in question, thus you can get financing of this type with less than perfect credit.