Whether you’ve been in business for ten days or ten years, your small business has times during which you’re undoubtedly strapped for cash for months at a time. While this is all typically just a part of the natural growth cycle of businesses, it’s hard on your business, and has been known to cause other owners to close their doors. Fortunately, there are options like purchase order financing during these tough times that offer you the boost you need to really make your company work even under these stressful circumstances. If you’ve never dealt with this arrangement before, however, it may be beneficial to take a look at how the process works to get a better grasp on how it’ll impact your business in the future.
The first step you go through is gaining approval from the company for your purchase order financing plan. It’s important to keep in mind that rather than evaluating your business’s credit throughout the process, the company you turn to is paying closer attention to the credit of the customer to ensure they’re going to receive their payments when they expect them. If the customer in question has a record of reliability, your chances of having your proposal accepted go up exponentially.
When your reselling company (manufacturers are ruled out of this deal) receives a large order from a client with the credit and reliability to qualify, you can contact your purchase order financing company about turning the standing order into cash on hand now rather than waiting for it to come through later. Once the credit lender verifies the customer’s creditworthiness, they’ll send a letter of credit or other payment to your manufacturer, which can take a week or two. They’ll also handle the shipping costs associated with getting the goods to their businesses, but you may be held responsible for other fees for inspections.
Once the customer receives the goods they’ve purchased and receive their invoice, it’s time for the real arrangement to begin. If the customer pays you immediately for the goods, the company in question will collect the payment from the customer. After subtracting their cut of the deal, they’ll give you the money you’re owed as the remaining profits from the sale. If, however, the customer is making monthly repayments or matching other terms, the company may instead offer to outright purchase the invoice at a discount, getting you your money even more quickly than before.
This is roughly how the process works. To understand the steps associated with purchase order financing and how it can improve your business, speak to a representative of one of these companies.