Leverage the value of your purchase orders to free up cash.

If you’re in the product based business and you’re coming up short, you may have heard of PO Funding. It’s not the best solution for everyone, but it is optimal for the right industry with the right plan.


As a startup or even a growing company, cash flow is sometimes a challenge. Getting financing, loans, or even credit cards is tough without an established reputation. Most times, if you don’t have the score, you don’t have a chance. That’s where Purchase Order Financing can fill in the gap. If you’re contemplating PO Funding, you need to know a few things first. If you’ve never heard of it, now’s your chance to learn.


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Purchase Order Funding

Will PO Funding (Purchase Order Financing) Work for Your Business?

If you’re in the product based business and you’re coming up short, you may have heard of PO Funding. It’s not the best solution for everyone, but it is optimal for the right industry with the right plan. As a startup or even a growing company, cash flow is sometimes a challenge. Getting financing, loans, or even credit cards is tough without an established reputation. Most times, if you don’t have the score, you don’t have a chance.That’s where Purchase Order Financing can fill in the gap. If you’re contemplating PO Funding, you need to know a few things first. If you’ve never heard of it, now’s your chance to learn.


What is PO Funding (aka Purchase Order Financing)?

PO Funding, or Purchase Order Financing, is a lending system that uses purchase orders as collateral. With traditional loans, credit history and scores are critical. Unlike their process, PO Funding is more lenient and flexible. It works more like a cash advance rather than bank or credit card financing. Businesses use the loan to pay for supplies they need to fulfill their order.

You need the funds to maintain scalability and adequately service your clients. When they place orders, they need them by the deadline and as requested. Most of them have a Net 30, 60, or 90 day payment arrangement. That means you won’t reap the financial benefits from the orders until you’ve made an investment. You not only need time and labor, but you also need supplies. Materials, products, and shipping packages all take money. Even if you’re not fulfilling the order, your manufacturer needs payment to do the job. That’s when some companies rely on Purchase Order Financing.


How Does PO Funding Work?

First, you need a purchase order from a credible client. At that point, you can start the process of getting Purchase Order Financing.

Step 1: Use your purchase order to determine the amount of supplies, time, and labor you need. Calculate how much the project will cost to produce and deliver to the customer.

Step 2: Find a suitable lender who offers PO Funding. Make a proposal for financing using the purchase order. LenCred can help with that.

Step 3: The finance company will research to assess risk of both your business and your client’s business. They want to make sure your client qualifies and will most likely pay for the order. On your end, the lender wants to see that your company is capable of fulfilling the order by the deadline. Do you have enough equipment, labor, facilities, etc.

Step 4: Once you’re approved, you’ll receive a part of the  total order amount. If working with a supplier, the funds will go to them to create the product. Once the supplier ships the order, the PO Financing company will pay them. This will provide what you need to complete the order and submit an invoice to your customer.

Step 5: When it’s time for your client’s invoice payment, the lending company will collect directly from them. Once the lender’s take the loan balance and any fees, they’ll send you the remaining funds for profit.


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Pros and Cons of  Purchase Order Financing

Like all financial products, PO Funding has its advantages and disadvantages. It depends on several factors, including where you are in business and the goal you have for funding.


Pros

–PO Funding is not a traditional loan
–Requirements are not as stringent as getting a business loan or credit card
–Works like a cash advance
–No upfront cash down or money out of pocket
–It helps you keep your current cash flow or reserve
–Helps solve the problem of no cash flow
–The lender handles transactions with the supplier and purchase order invoice collection
–Lender assumes most of the risk
–Gives your business scalability
–Solves supply shortage when taking on large orders
–Approval based on your client’s ability to pay
–Approval based on your ability to fulfill the order
–PO Funding is fee based with no recurring interest or long term payments
–Helps companies earn more profit from larger projects
–Companies can build a good reputation in their industry

Cons

–Not a good source of funding to build business credit
–Minimal profit margins if the lender’s fees are too high (Less than 20-25%)

How Do I Get Approved for PO Funding?

Once you’re certain you meet all the qualifications, you can apply to get approved. Use the steps above in “How does PO Funding Work?”. If you have a good relationship with your bank, ask about Purchase Order Financing. Not all banks offer this type of funding, so the next step would be other non-traditional lenders. It’s best to get help from an expert when looking for PO Funding approval. Also, make sure you have good payment history and no recent bankruptcies, liens, or other judgments.


What Type of Businesses Usually Need PO Funding?

PO Funding is not a good fit for everyone, but for the right business it can be your saving grace. Those who may need Purchase Order Financing are product based businesses. It doesn’t work for service businesses.  Funding depends on a guaranteed (purchase order) payment for finished products. Service companies don’t have any tangible assets to add leverage to the deal.


Some specific product industries that use purchase order financing:


–Outsourced Manufacturers
–Distributors
–Finished Goods Dealers
–Wholesalers
–Resellers
–Importers and Exporters

Your business should also already be somewhat established. It is okay for small business and fairy new companies to seek PO Funding. The important part is showing you’re capable of fulfilling the large purchase order you’ve taken on. That comes from a good track record of fulfilling orders correctly and on time. It also reflects through your equipment and business setup. Have you been reinvesting in the company to help it continue growing?

Businesses who have a good client relationships may also need Purchase Order Financing. Customers who you satisfied with your products in the past may decide to trust you with more orders. In that case, you need the cash flow to expand. You also have clients that you know are creditworthy. That means your chances are better for getting PO Funding.


Get Help With your PO Funding Today!

If you’ve caught your big break with your dream client, you may need a little help getting the job done. PO Funding is there to fill in the financial gap. Find the right Purchase Order Financing Lender with help from LenCred. We work with entrepreneurs and small businesses to get funding of all types. Contact us today for help getting capital for your business!