Hundreds of financing companies are offering purchase order financing in the market. However, not all fulfill the criteria to manage financial transactions successfully. Choosing the right finance company is vital as your business somehow depends on these transactions. One wrong decision can put your reputation and business in danger. In this blog, we will help you to understand purchase order financing with some steps to choose the right company.
What is purchase order financing?
First thing first. Before we start our flight, we need to understand the basics of this term. Purchase order financing is short-term financing to pay suppliers through companies. This is an effective option when a business is in dire need of short-term capital. Such companies provide a certain amount to businesses on different interest rates.
How does it work?
The process of purchase order financing includes your company, your suppliers, your customers, and purchase order financing company. When a business receives an order from a customer, not every time you have those items in inventory. You have to purchase goods from your suppliers. In case you do not have enough cash in your pocket to pay the supplier you contact a purchase order financing company. They pay your suppliers on your behalf. The purchase order finance company receives the payment from your customer. The company pays you the customer invoice amount after deducting their fee.
Who use it?
If you want to purchase items before delivering it to a customer then purchase order financing is for you. In other words, you can say that any business that requires capital in advance can get the benefit from this option. Usually,
- Business with seasonal sales patterns
- Business with low cash flow
- Business that needs to purchase material in advance
Use this option more frequently.
Importance of a purchase order financing
Purchase order financing brings many advantages to your business irrespective of the size of your business. A lot of businesses use this option to handle their finances smoothly.
Not a loan
This is not a loan, so you do not have to repay it in installments. Once companies collect money from your customers, it will be paid automatically. They deduct their fee and pay you the rest of the invoice amount. In this way, you can utilize your in-hand cash without thinking of paying them back.
Funding for your business
Turning down a deal or order simply because you don’t have enough cash to buy goods is the worst thing for your business. Purchase order financing help to grow your business. Even if you are a small business with a low budget, you can survive in the market. Big order requires a big amount. With this option, you can purchase the goods to fulfill your order without investing huge money.
Collections and payments
Purchase order finance companies not only pay your suppliers but also collect the money from your customers. This ensures a smooth sales process. All you have to do is catching an order and the rest will be done by the PO Finance company. This gives you opportunities to grow your business without having payment or collection troubles.
Your inventory is your asset and you cannot afford to ruin it. You need this business feature to maintain your inventory. In case you do not have enough capital to invest you can go for financing. With this, you need an efficient inventory management system to take care of your business. SeeBiz Inventory is your companion when it comes to inventory issues. If you are doing business through a third party then tracking the order is a must. SeeBiz Inventory helps you to manage your purchase and sales order smoothly.
How to choose a purchase order financing company in 2021?
In these tough times when companies are already suffering, your one mistake can ruin your reputation and your business. Due to limited cash flow, many companies prefer to use a purchase order financing option. But not all companies are the best suited for your business. We will help you choose the right company for you by giving you some points to observe.
The focus of the company
Before choosing any company, you should evaluate the company’s focus. Do they focus on financing the purchase order or is it a secondary function they offer? Many factoring companies use this feature to win over customers. Choosing them is a risk to your business. Financing purchase orders should be the cornerstone of the business. Only then can you trust the company to grow your business.
Company credibility and tenure
You must check the functionality and credibility of the company. Any company that has been in the market for less than two years is not a good choice. Communicate with their other customers to ask for their experience with the company. In all kinds of financial matters, you have to decide on detailed research work.
Transaction’s handling area
You must check the company’s transaction handling area. Either they are doing business with similar businesses as yours or not. How long it will take them to facilitate you? What are their interest rates? How they handle the transactions? These are major questions to figure out before making any decision.
Many companies offer purchase order financing. Especially in these hard times when businesses are not doing good, this is a life-saving offer for them. We helped you to understand the basics of purchase order financing. We discussed the importance and points that you should observe before choosing any company. A wrong decision can affect your business and credibility in the market. Always act cautious and take the steps to enhance your business.