Small businesses will often encounter situations where they simply don’t have the cash resources to fulfill large orders that some of their clients would like to place with them. Purchase order financing will help you to acquire the raw materials needed to build finish goods and complete orders for those customers. That in turn, can lead to even bigger orders from other clients and can help your business grow rather quickly. Here’s how purchase order financing can help your small business.
How It Works
An alternative lender will generally finance the money needed for raw materials and other resources which are required to fulfill a customer order. Most of the time, this will be some amount less than 100% of what’s needed, and they will expect you to contribute the other portion. Then of course, there will be an interest rate applied to this money which is loaned, and that will generally amount to somewhere between 2% and 6% every month.
In this scenario, the lender will pay the supplier directly, and the supplier will deliver whatever goods or raw materials are needed. If some kind of final assembly is needed, your company would furnish those services and then deliver the finished goods to the customer, at which time they would be invoiced. The customer will pay the invoice directly to the financing company, and the financing company will subtract their fee plus all interest which has accrued, and then remit the balance of the invoice amount to your company.
Advantages of Purchase Order Financing
It’s much easier to qualify for purchase order financing than it would be to qualify for a business loan from a bank, and you won’t need to have a perfect credit history either. After you’ve completed several of these large orders for customers, your business will establish a reputation as a can-do kind of company, and you’ll become a stronger and better-recognized company.
Would Your Business Benefit with Purchase Order Financing?
If you lack the resources to fulfill large customer orders, purchase order financing could be ideal for your business. Contact us at Pendleton Commercial Financing to discuss how it can help grow your business and give you greater credibility in the business world.