How Small Businesses Can Use Purchase Order Financing
There are countless issues that can come along when you are the owner of a small business. Unfortunately, some financial difficulties can be more complicated to deal with than others. When you are struggling because customers are not paying for goods or services in a prompt manner, you might want to look into invoice factoring as a solution. If you’ve already used factoring, then you might also want to look into a service like purchase order financing. Explore these details to see whether or not it is a good fit for your needs.
How It Works
This is a service that operates much like factoring does. With invoice factoring, you sell your unpaid invoices to an organization that specializes in the service. The company determines which invoices are eligible and you are given a percentage of the total value in cash. Most business owners find this service to be beneficial because it is not a loan. Instead, it is an advance on funds you are already owed. This can be advantageous and help you to stay on the right financial path for the future of your business.
Financing Purchase Orders
A service like purchase order financing is very similar to factoring. Essentially, this is a service you will turn to when you have delayed payments from a client but still have a projected date when the payments will arrive. Since you need funds to cover the period between providing the service and collecting payment, the money you receive from financing your purchase orders can help to cover the gap. Once you receive what you are owed from your client, you can pay back the money you were advanced and get back to business as usual.
Considerations
There are a few considerations to take before you assume this is the right financing option for your business. Above all, you need to understand that not all invoices will qualify. As with factoring, you can only finance purchase orders from larger or reputable clients. This typically means you will only be able to use the service for government contracts. If you have contracts with government agencies, then this is a service you might be able to take advantage of when your cash flow is interrupted by forces beyond your control.
To keep your business successful, you need to know what direction to turn when financial difficulties arise. Explore your options with a service like purchase order financing and see if this is the best fit for your future.
