Purchase order financing can be a great solution for businesses which simply don’t have the cash reserves in order to acquire inventory necessary to complete customer orders. Here’s how you can arrange for purchase order financing, which might be of great value to your small business.
Steps involved with purchase order financing
Here are the typical steps a small business would go through in order to arrange for purchase order financing:
- Order receipt – you receive a purchase order from one of your customers, and you determine that financing will be necessary to secure needed inventory
- Cost estimate – you ask your supplier what the total cost of inventory would be for the type of products needed
- PO financing application – when you realize you don’t have the cash reserve to purchase needed inventory, you apply for purchase order financing with an alternative lender
- Supplier is paid – after you’ve been approved for PO financing, your alternative lender pays your supplier for the necessary inventory
- Your supplier delivers the goods – the inventory needed to make finished goods is delivered to you, and your employees assemble the goods for your customer
- Customer invoicing – the customer is invoiced for the finished goods supplied to them, and you will eventually be paid for the amount of that invoice
- Customer pays the invoice – your customer will pay the amount of the invoice, either to you or to the PO financing company, and your credibility and reputation is increased with your customer
- You get paid – if your customer has paid the purchase order financing company, your share of the profits would then be forwarded to you by the PO financing company, and the entire loop of this transaction would then be closed.
Is purchase order financing right for your company?
Purchase order financing can be a great way of growing your business, and of meeting your customer demand for larger orders. If this sounds like your small business, contact us at 5 Star Funding Group, since we may be able to provide the kind of financial assistance you need to experience real growth.