About Purchase Order Financing
How Purchase Order Financing is an Asset and Accounts Receivable is Not Purchase Order Financing
Purchase order financing is a funding option that exists primarily to fill in cash flow gaps with businesses when there isn’t enough to cover the customers’ demands. It covers both single and multiple orders. Sometimes, there just isn’t enough cash to keep up on the stock or to cover the costs of keeping the business running in general. When a business is unable to fulfill an order, it could very easily lead to not only the loss of profit but also the reputation becoming less and less stellar until it finally leads to the business coming to an end.
Purchase order financing unlike factoring companies; involves the company paying another company’s supplier in order to fulfill the order or a task for the customer. In most cases, the supplier can cover a large portion of the order or task but only rarely do they cover 100%. The purchase order financing company reviews the invoice and collects the cost that the invoice covers. The purchase order financing company then charges the company the remaining amount and returns anything leftover to the company as soon as the task or order has been completed.
One option for companies with poor credit or very few assets is to go ahead and open up a credit line for the supplier. How this works is that the credit will be in the company’s name and, hence, is the company’s responsibility to keep up with it or lose the business. Purchase order financing in general does not require businesses to have perfect credit and that’s what tends to make it much easier than financing through a bank. Believe it or not, purchase order financing actually inspects the credit of the individual customer rather than the company. This is why many companies cater only to government agencies or other commercial clients.
When a company is unable complete an order or an assigned task upfront due to cash flow issues, it risks losing everything. Also, when you go out looking for another job after losing a business, it can leave a permanent negative mark on you as a potential employer or employee and, hence, your chances of being hired can also be affected as well. Hopefully you’re in your business because it’s something that you’re passionate about. Owning a business can arguably be compared to owning a plant. If you don’t give it the care and nurturing that it needs, who will?