Amounts: Differs from lender to lender. There must be a certain amount of profit in the deal to be considered.
Speed of Funding: a few days
Terms: 7-90 days
Repayments: On Payment from customer
Interest Rates: This is a fee or interest based product depending on the lender. Typically expensive.
What is Purchase Order Funding?
Businesses often face problems when they try to secure large orders from new customers. Competing for new business is a difficult process in itself, since customers are constantly looking for the lowest price. Another challenge is getting the capital to buy supplies or products to deliver on the new orders.
Your business may be in a position where it is not able to fulfill a customer’s order because it does not have the materials in stock or the cash to acquire them. When this happens, the business risks losing both the order and the customer. A purchase order loan can tide you over.
Purchase order funding has become a popular way to finance a company that has received a large purchase order from a customer. This is one step before the invoice is generated.
A purchase order loan bridges the gap between order and payment and has the advantage of being faster and easier to obtain than a traditional bank loan. A P.O. loan is based on the creditworthiness of your buyer (customer) and your business.
Is designed specifically to help wholesalers and distributors who resell products to commercial customers
Is used by companies who need funds to pay suppliers
Helps companies grow past their financial limitations
- It’s easier to get than bank financing
- It can be set up quickly
- The credit line can grow with your revenues
- It’s available to small companies (and start-ups, in some cases)
- The size of the line is limited only by the capabilities of your suppliers, the credit quality of your customers, and your ability to deliver orders
- It only helps companies that supply and deliver finished goods that don’t require manufacturing, assembly, installation, or customization
- It only covers direct supplier expenses
- It only works in transactions that have a gross margins of 25% or more (with exceptions)