Purchase order financing is designed to help businesses take on large customer requests without placing a strain on cash flow and operations. However, not many people dig into exactly how PO financing is more beneficial than a traditional bank loan.
PO financing is a debt-free solution
Purchase order financing is an advance to cover the cost of filling customer orders. Once the order is filled and delivered the end customer pays the invoice in full – which includes the amount of the advance.
PO financing can be arranged quickly, because it is commerce-based funding for time-sensitive transactions. Contrast this with bank loans, which can take weeks and months to process before funding is made available.
No payment schedules
Bank loans lock businesses into payment schedules, so even after goals are met with funding, entrepreneurs can wind up paying off the loan for years to come. PO financing is arranged per customer order, and paid at the end of those transactions, without any payment schedules.
As mentioned above, bank loans place debt on the balance sheets. For growth-focused businesses, taking out a loan is almost counter-productive, because even if large customer orders are filled, the payments on the loan chip away at any earned revenue and prevent the accumulation of growth capital. PO financing, on the other hand, allows businesses to take on large customer orders, reap the sizable revenue from filling those customer requests, and keep it without having to worry about additional payments.
Purchase order financing is customizable
Bank loans are for a set amount, regardless of the needs of the business. This can saddle entrepreneurs with unnecessary amounts of debt, and there really isn’t the option of giving the difference back to the bank. Purchase order financing is customizable so that the amount fits the order. No more, no less.
PO financing levels the competitive landscape
When businesses take out bank loans, they are left paying off interest for years, and have to shift their accounting to budget revenue to meet those monthly payments. This can inhibit businesses from taking on large orders and expanding their client base, while their competitors keep their advantage with customers. Purchase order financing allows entrepreneurs to take on large customer orders, allowing them to compete with much larger companies.
Purchase order financing is not a one-shot deal
Banks will not give out consecutive loans. A loan must be repaid in full before further financing can be secured through a bank. Purchase order financing can be secured for consecutive customer orders, which can bring a business rapid success and large amounts of revenue.
Is PO Financing Right for Your Business?
Businesses that require working capital to produce orders should consider PO Financing. It works to provide upfront cash on hand so a business can take new or larger volumes of sales. Growing businesses do not have to turn down new sales because of cash flow strain. Instead, a business can grow sustainably with steady working capital.