Your One-Stop Guide for Purchase Order Financing
Running a business carries inherent risks and presents many challenges. You knew this when you started your business, but when reality hits, and cash flow is poor, you need to make some quick decisions. There are several options to getting financial assistance to get your organization back on track. Purchase order financing can help you retain clients and have the money you need to fill orders. Like any type of financial aid or lending, there are benefits and drawbacks to this options. It’s important to examine whether it makes sense for your company.
What it Is
In purchase order financing, your company would pay the supplier of another company for supplies or services that the company ordered to complete the task for a client. Often, this isn’t the full amount of the goods, but it will ordinarily cover most of the costs. The company you’re working with to complete the purchase order is then responsible for collecting from the end user. Your company will pay fees to the purchase order company, which are subtracted from the collected invoice. You would then get the remaining money. As an alternative, you could open a line of credit with the supplier.
Benefit No. 1: Improve Efficiency
When you use purchase order for your business, it’s much easier to keep tabs on what you’ve ordered. You can also budget more effectively, thus saving your organization time, money and valuable resources. You can reduce the need for checking and cross-checking, and you can have greater confidence that your business is operating in an organized manner.
Benefit No. 2: You’re in Control
One of the biggest mistakes business make is ordering supplies or making purchases when there’s isn’t enough money in the account to cover the costs. This can’t cause significant problems with cashflow and even damage a company’s reputation with other businesses. However, when you use purchase order financing, you can more easily create budgets and establish better control over how you use your money.
Keep You out of Trouble
Unfortunately, fraud is a serious problem in all types of businesses. If you want to reduce your risk of falling into these situations, purchase orders are an excellent way to stay away from fraud. With purchase orders, you can keep better records and more easily conduct internal audits.
If your business is struggling with cashflow, you can try many different methods to improve your finances. Purchase order financing is something you and your company should strongly consider.