We can’t deny that we are still in the middle of an economic crisis and we simply need to be creative in order to survive. For most small and medium scale businesses, finding the funds to support their daily operations continues to be a challenge. Fortunately, there are many funding strategies available to businessmen. One of these options is through purchase order financing.

If you received a big order from a company of good reputation, then you can avail of loans against these orders. Unlike traditional bank loans, you are not required to put up hard assets as collateral to qualify. PO lenders often approve transactions faster than banks do. Many start-up manufacturing firms have used this form of lending because it is faster and it allows them to fulfill their orders without depleting company cash reserves.

If your business urgently needs cash to fulfill a client’s order, then you can tap on financing companies that offer PO lending. Usually, small businesses face problems on their cash flow, and may not be able to buy their raw materials on cash basis. PO lenders can issue a letter of credit to your supplier so that you can have the materials you need for production.

A company that offers purchase order financing usually conducts due diligence on your supplier to make sure that the supplies you need may be delivered on time. Issuing a letter of credit protects all parties in the transaction – your supplier, you, your buyer and the PO lender. Risks such as non-delivery of raw materials and finished products are lessened, since no party gets paid until after delivery.

The lender also checks on the credit rating of your buyer. Your clients should be able to pay within 90 days or less after you invoice them. Preferably, you should only deal with buyers who have good reputations and are financially solvent.

Most companies that produce, distribute or resell manufactured goods can qualify for this type of financial assistance. However, most PO lenders look for transactions with guaranteed minimum profit of 20% per transaction. This is because this option is usually more expensive than other traditional loans. If the margin per transaction is less than 20%, it may only leave a small profit to the seller, after the loan is paid off.

If you are selling services, you cannot qualify for this type of funding, unless products are being sold with the service you provide. A good example will be if your company provides industrial products, where you also provide maintenance or replacement services. However, the price of products must be distinct from the services.

Remember that purchase order financing is only a short term loan facility, so PO lenders usually expect to be paid back within 90 days or less. Each funding company has different criteria for funding. Thus, it is best to compare what lenders offer in terms of loanable amount, interests and time required for repayment. You can easily do this by visiting websites of companies that offer this kind of funding option.

Unique financing solutions including factoring and accounts receivable be customized to your business’ needs. Contact Accutrac Capital Solutions today to get started!

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