5 Reasons to Use Purchase Order Financing Instead of Loans
As the old saying goes, it takes money to make money. When you run a business, you know the amount of money you need to spend on supplies and transportation and to hire labor to fill your orders. In lean times, you may fall short of your goals and may need an extra push to deliver your orders to customers. This is where purchase order financing comes into play. A third party will advance your company the money so it can produce goods or provide services and collect the invoices from your clients. The financing company will charge fees for this service, and this is what makes it worthwhile for them. There are many advantages this kind of financing provides to a business.
First of all, purchase order financing is available to your business when there simply isn’t time to secure conventional types of loans. Most bank loans require a significant amount of waiting time and paperwork. By the time you get approved for the loan, it is likely that the deadline for the order will be past due. Getting financing from your orders can be a quicker process and will enable you to get the funds you need. Second, you do not need a stellar credit rating to benefit from purchase order advances. You may be required to show your company’s record and prove that it has been profitable. Third, you can build up a relationship with the financing company. Hopefully, it won’t be frequent that you will fall short of funds to fill your orders, but when it happens, you can work with the same purchase order financing company that knows your business is reliable.
Fourth, purchase order advances, unlike regular loans, do not have premiums or interest. While there are fees charged by the company, you won’t have to deal with the burden of having a long-term debt obligation. This can free you up and keep our cash flow running so you can invest in your business. Fifth, since the financing company collects on your invoices, you will be spared the annoyance of having to make sure the client pays you. Dealing with accounts receivable can be a distraction from running your business, and if you have purchase order financing, you can let the third party do the collection for you. While this is not a viable long-term solution to getting paid, it can be enjoyable to be relieved of that burden from time to time.