PO financing, also known as purchase order financing, is a type of an advance from any financial institution that makes payments to your suppliers for the goods that you resell or probably, even distribute to a customer. The customer needs to have completed the written purchase order. You are able to finance a hundred percent of the costs of the purchase order with the rates falling between 1.8% to 6% monthly.
This PO financing takes anywhere between one to two weeks for the funding. If you require funds before this, you can plan on applying for a short-term business loan.
When do you need PO funding?
PO financing is required by a company when
1.You need additional capital for working
- You need expertise in handling the financing
- You are not ready to incur any additional risk regarding the credit, be it domestic or even foreign.
- You do not want the buyers and sellers to know each other.
- You are looking for an opportunity for making an additional profit.
How does the PO Financing work?
PO financing is a simple process. Here are a few of the steps for this financing.
1.Receive a Purchase Order:
The customer submits the purchase order that specifies the volume and the type of goods they would want to purchase. With this information, you are able to determine whether you need financing for fulfilling the order.
- The Costs is estimated by the Supplier:
You get a clear picture of how much the goods will cost. You are given an invoice by the supplier. At this point, you can determine whether you can afford the order or no.
- Applying for Purchase Order Financing:
You apply for the PO financing once you know for sure that you cannot afford the demand of your customer. The lender can approve the supplier’s cost up to 100%. This depends on the requirements and if you can qualify for this or no. This also depends on the creditworthiness of the customer, and the reputation of the supplier.
- Payment is done to the Supplier:
Your supplier is paid by the PO financing company. If you are not able to get approval for the total cost, you will need to make up for the shortfall by making a payment to the supplier
- Customer is supplied the Goods:
The goods are shipped to your customer directly by the supplier. Ensure you are not taken as the middle man.
- Invoice to the Customer:
Once you get to know that the goods are supplied to the customer, you need to invoice the customer. If the customer wants to pay over a period of time, the invoice can be purchased by the lender from you at a reasonable discount.
Finally, the customer pays to the PO financing company, which then forwards the funds.
PO financing works well for start-ups and this has flexible funding. There is no personal guarantee required so this financing works better as compared to the different loans.
