Is your business experiencing financial hardship?
Every successful company is bound to encounter a few challenges along the way. But, when companies experience a minor setback, it doesn’t have to bring business to a halt.
Today’s wide range of business loans provide companies with more possibilities than ever before. With the resources to get through a financial slump, you can continue business as usual, come rain or shine.
One option available to companies that sell finished goods is purchase order financing. This type of financing helps companies be able to afford to fulfill customers’ orders.
Purchase order financing can be a lifeline for businesses that are struggling financially. They can help businesses afford manufacturing and delivery costs.
When a business fails to honor its guarantee, the consequences can be fatal to its’ future.
Competition is fierce for today’s companies. Sub-par customer service in any industry carries weighted risks. Unsatisfied customers can lead to a poor professional reputation. And, in worst cases, the outcome can leave a business no choice but to close its’ doors for good.
Luckily, purchase order financing can help your business maintain customer satisfaction. It can also help keep your company’s reputation intact. And, these loans also ensure that business doesn’t have to stop, even when times get tight.
Read on to learn about purchase order financing lending!
How Does Purchase Order Financing Work?
Businesses that sell finished goods to other businesses (B2B) or to the government (B2G) often use purchase orders. These forms are used to fulfill customers’ orders.
The customer decides on the products they want to purchase, then they return the form to the supplier. Purchase orders often have a carbon copy attached so there are 2 copies of the customer’s order. One belongs to the supplier and the other copy is for the customer to keep for their records.
The seller extends customer credit for the orders placed with their company. The order is delivered to the customer by the supplier, along with a copy of the purchase order. This allows customers to better understand their charges and estimate a payment amount.
The order also lists the items ordered so customers can compare it with the items delivered. This helps the customer and the company keep track of goods included in the delivery. And, it allows them to check for any discrepancies of items delivered.
Purchase order financing allows the company to use customers’ unpaid purchase orders as collateral to secure the loan. However, these loans are intended only to fund customers’ orders. The customer is prohibited from using the funds received from purchase order financing companies for any other purpose except the cost of manufacturing and shipping of their customer orders.
What Does the Payment Process Entail?
The lender does not send the funds to the company selling the goods. They send the loan amount to the supplier, who can then collect their fees and forward the remaining amount to the seller.
It’s customary for B2B/B2G companies to fulfill customers’ orders prior to receiving payment for the goods included on the order. These companies have established mutual trust with customers.
They trust that the customer will submit payment after they have received their order for the goods they provide. The customer trusts that the company will deliver the goods they have ordered.
The customer relies on the integrity of the company providing the goods to honor an unspoken promise to deliver their goods. When they receive the goods that they order, customers do not pay the company directly.
Instead, they send their payment to either the lender or supplier directly. The supplier’s fees are deducted off the top, then the remaining amount is distributed amongst the parties per the terms of your loan agreement.
Once the supplier has received their payment, there are two things that might happen. Either the loan is paid and closed, or the loan becomes part of an invoice factoring loan at this point. If there is an invoice factoring agreement, the borrower follows the payment terms included in the agreement until the loan is fulfilled.
Who Should Apply for Purchase Order Loans?
In order to qualify for purchase order financing, there are a few qualifications the borrower must meet. If you’re considering applying for a purchase order loan, you should be aware of qualifications that lenders look for, which include:
- Companies who receive funding must sell finished goods to business-to-business or business-to-government customers with a profit margin of 15% or more.
- Approval depends on the manufacturing company’s credit, history, and reputation (the better these are, the higher your chances for loan approval)Purchase orders cannot be canceled once they have been submitted by the customer.
- Customers’ purchase orders include at least $100,000 dollars worth of goods.
PO loans serve young and old companies alike. Purchase order financing for startups is available for applicants that meet the requirements.
To determine if you are eligible for a purchase order loan, it’s best to speak directly with an expert. They can answer any questions you might have before you apply. If purchase order financing isn’t the best option for you, the expert can also help you identify an alternative financing solution that will work for your business.
Apply for Financing Today!
Are you ready to apply for purchase order financing? Or, perhaps you want to learn more about your loan options from someone who can help you determine if a PO loan is the right alternative lending option for you.
Don’t let a lack of funds get in the way of your company’s success. Our financing experts at Strategic Capital can help you get the funds you need so you can fulfill your customers’ orders seamlessly.
Checking for pre-approval will not affect your credit score.