For many small businesses, keeping enough inventory on hand to satisfy customer demand is a constant struggle. This is especially true as the business starts to grow. Orders are received more frequently and get progressively larger. In an effort to keep up with the influx of orders, it’s not uncommon for working capital to become depleted. This lack of capital can leave a business waiting for invoices to be paid before purchasing new inventory. Without the necessary inventory to continue filling orders, business comes to an abrupt halt and the business owner is left scrambling to secure the funding needed to keep their business growing. Purchase order financing can be a great solution.
Understanding Purchase Order Financing
Purchase order financing enables a business to accept and fulfill a large order they would otherwise have to decline. When applying for this type of funding, the financing provider will require a confirmed purchase order from a creditworthy commercial customer and an invoice from the supplier for the goods necessary to fill the order. Once approved, the provider will pay the supplier directly. Typically, the financing provider only covers 75 – 90% of the cost of supplies, requiring the business owner to provide the balance. The goods are then shipped directly to your customer and the customer is then invoiced for those goods.
The repayment of purchase order financing is normally done by using invoice factoring. The financing provider will buy the customer invoice at a discounted rate, typically 70 – 90% of the face value. The customer will pay the full invoiced amount directly to the financing provider. The business owner will then receive the remaining balance minus a factoring fee. While there is a small expense associated with purchase order financing, it can be very beneficial for a business experiencing growing pains.
No Additional Debt
Every business owner cringes at the thought of taking a loan and making those monthly payments. Purchase order financing is not a loan. It is an advance on future earnings, so when utilizing it, you will not be taking on additional monthly debt. It is a great short term funding option for a business that needs a quick influx of working capital.
Nothing will drive a customer to one of your competitors faster than not being able to fill an order. No matter how good your product is, if you can’t keep up with the demand, your business will develop a reputation for being unreliable. This type of reputation will not only cause you to lose current customers but it will also jeopardize future business.
Promote Business Growth
As a business owner, you probably heard the old adage “You have to spend money to make money.” This is certainly true when trying to grow your business. That’s not the time to be damaging customer confidence and loyalty by turning down orders. It’s the time to take advantage of every opportunity that comes your way but without incurring large amounts of debt. Purchase order financing will allow you to do just that.
CapFlow Funding Group is dedicated to providing the short-term working capital you need to keep your business growing. We will work with you to find the best funding solution for your business. While CapFlow Funding Group specializes in factoring, we can also connect our clients with purchase order financing if that is better suited to their business needs. We service many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.