One of the main issues concerning purchase order financing is that it only helps certain types of companies despite it being a flexible product. This article provides a general overview of purchase order financing, and it will also assist you in understanding whether the financing option suits your company.
Basic Requirements
Typically, the purchasing order financing is generally straightforward. However, it limits the type of businesses that can qualify for it. The following are the needs that a company should meet.
It should be a merchandise reseller or use a sole third-party production supplier.
The company’s gross profit margin should exceed 20%.
Partner with commercial clients with good credit scores
The monthly sales should be at least $ 100,000.
Advantages
Purchase order financing offers considerable benefits for businesses that qualify for this financing option. They include:
A company can acquire more orders.
It offers funds to fulfill clients’ orders when a company doesn’t have enough money.
It can be combined with factoring to handle the issues of client payment time.
It deals with supplier payments.
Typical Clients of PO Financing
Based on the transaction’s structure of purchasing order financing, the typical clients for these financing options are reseller industries and wholesale distributors. Purchasing order financing clients are usually new firms that have gained traction and require working capital to carry on with their growth strategy.
Who Is Not Eligible For PO Financing?
Unfortunately, firms which manufacture products directly are not eligible for purchase order financing. This is based on two reasons:
Most manufacturing firms possess several suppliers and order products in different quantities. This complicates the management of supplier payment linked with a particular order.
The manufacturing process may not offer goods that meet clients’ needs, making the funding firm accountable for supplier payment for lacking a way to deliver goods and complete the order.
However, manufacturing firms can apply for supplier financing. This financing option also has several benefits for these companies.
Are you a whole distributor, or does your company belong in the reseller sector? If yes, purchasing order financing can be helpful in the operations of your business. For more information, contact us today at Lode Capital.