What is Purchase Order Financing?
Purchase order financing is a method for a business to obtain quick capital to fill single or multiple customer orders. There will be times when there are not enough funds available to cover the costs of doing business. As a result, there may be an order from a client that isn’t able to be fulfilled due to a lack of funds. A company may not be able to afford the supplies necessary to meet the client’s particular needs. Having to turn the order down would mean loss of revenue and harm a company’s reputation.
If word gets around that a company is turning away business because they can’t afford to complete jobs, customer trust is diminished. It is imperative that businesses find the funds that they need. For some companies, purchase order financing is a great way to go.
Purchase order financing involves one company paying the supplier of another company, for goods that have been ordered to fulfill a job for a customer. This is an advance and may not be for the entire amount of the supplies, but it will cover a large portion of it. In some cases, companies can qualify for 100% financing. The purchase order finance company will then collect the invoice from the end customer. The purchase order finance company makes their money by charging the company in need of funds various fees. These fees are taken out of the collected invoice. The remaining amount is returned to the company.
A second option is for the purchase order financing company to open up a line of credit with the supplier. The line of credit will be opened in their name and backed by them. This allows businesses with poor credit or few assets to get the supplies that they need.
Purchase order financing can be beneficial. It is pretty easy to qualify for and is much easier then bank funding. Also, it does not require a company to have good credit. What is important is the creditworthiness of the client who has created the purchase order. If this person has a strong credit history, then purchase order financing is easy. Many companies will require that the client be a commercial one or a government agency. There might also be other requirements. For example, the company may need to be profitable or earn so much in sales each month. The requirements will likely differ based on the financier.
We have a quick and easy approval process that can get you set up in as little as 3 business days. GMA Factor does not sign you on to any long-term contracts. Get started immediately by filling out the quick application on the right-hand side of this page or go to our online or downloadable application.