Alternative Financing Series: How Purchase Order Financing Can Help Finance Your Start Up Business
A Large Customer Order? Is It A Blessing or Curse!
For many startup businesses, obtaining that first large retail order is a cause of celebration. YES! It’s a confirmation that not only do you have a great product, but you now have a retailer eager to sell your product to their customers. Unfortunately sometimes those orders come in and your business doesn’t have enough working capital to fulfill the order. The up front cost to manufacture the product at that large of a scale is prohibitive. Now you need to find a bank willing to provide you with a large short term loan. As a startup business, you know that the banks aren’t eager to give large loans to new businesses.
So what do you do? Tell them, thanks for the large order, but no thanks? We can’t fulfill them? Or hey, can you make your order smaller ? How will that make your business look? Customers who were refused once may never call you again to request another order. So do you gamble it all and deplete your working capital, forgetting about your other obligations such as, payroll, taxes, utilities, rent…. And hope that they pay you immediately after receiving the merchandise? Do you call family and friends asking for a loan?
That’s where purchase order financing steps in.
Purchase Order Financing and Your Business
Why is purchase order financing so attractive to startup businesses ? For the same reason businesses with credit problems turn to PO financing. While a bank looks at your company’s finances, purchase order financing companies look at your customers financial strength. So it doesn’t matter if you are a brand new business with no business credit, and weak financials. Or even a well established business with bad credit. If your clients are credit worthy, purchase order financing can help you fulfill their orders.
No Need To Deplete Your Current Working Lines Of Credit
A new business can benefit greatly from Purchase Order financing. Working capital is the life blood of your business. You don’t want to deplete it. You never know when an emergency will arise and you need your working capital line to meet those obligations. Purchase Order financing gives you the additional option to accept bulk orders without the need to push your credit to its maximum limit.
Many established businesses have been successful because of this type of financing. Purchase Order financing is usually used by companies during peak seasons, a business may receive exceptionally large number of orders beyond its normal capacity. By utilizing purchase order financing, it becomes possible for a business to accommodate these orders even if they have limited cash.
Signs that your startup can benefit from purchase ordering financing
- Your company is experiencing explosive growth.
- You are rapidly outgrowing your existing lines of credit.
- Your current working capital can no longer sustain things like payroll, equipment purchases and marketing.
Who Cant Use Purchase Order Financing?
Of course if your client doesn’t have strong business credit, PO financing won’t be for you. The PO company is basing the repayment of the loan on your clients ability to pay. If your client has bad credit or weak financials. It won’t be an attractive deal to a PO company.
Also purchase order financing can only be used by companies with a tangible product. If you sell a service, PO financing is not for you.
The Key To A Successful Purchase Order Financing Relationship
Every business should take the time to explore Purchase Order financing and how it can help them as their business begins to grow. The keys to a successful Purchase Order financing are finding reliable customers and partnering with a reliable Purchase Order financing company. Thus, before accepting a large order from a customer, you would want to examine carefully the customer’s background and credibility.
Irish Taylor is a business loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Start up Equipment Leasing.
If your company finally landed with that dream order, but there is not access to the capital required to make it happen that it is when you require considering details about the purchase order financing.
Yes, PO financing can be a lifesaver! Some people get it confused with factoring but they are completely different. If you have any questions please feel free to contact us!
A purchase order financing that is designed for growing business with little access to working capital and appropriate cash flow. The article has amazingly shown how well it can be done and the things to take care of.