Common Questions About Purchase Order Funding
Purchase order funding is a type of alternative financing that helps with your main business operations. It can help you get inventory or raw materials to deliver completed orders to your customers. In a way, this type of financing sidesteps the need for loans and inventory management, focusing on direct deliveries to your clients. This guide answers several common questions business owners have about PO financing.
Which Businesses Can Use Purchase Order Funding?
Any business that uses purchase orders with business customers can generally qualify for PO financing. This includes a long list of B2B companies, such as:
- Commercial sales businesses
- Importers and exporters
The number of industries that qualify is even larger. This type of funding can help food service businesses, parts distributors, janitorial products sellers, warehouse equipment suppliers and many others.
What Are the Requirements To Qualify?
As mentioned, the main requirement relates to using purchase orders and customer credit. As far as business financials, your company doesn’t need to meet many requirements to qualify. Instead, your clients are the ones that need a good credit rating. As long as they have a history of on-time payments, it’s easy for your business to use this financing method.
What about time in business requirements? This is one area where PO financing truly sticks out. Normal requirements of “two years in business” don’t apply here. Even startups can qualify as long as they have existing customers with good credit.
What Types of Products Work With Purchase Order Funding?
Most of the time, PO financing applies to finished goods. Once you have your purchase order ready to go, you submit it to the PO financing team. They approve the order and send payment to your suppliers for the goods. They also take care of delivery to your clients.
In the case of manufacturing businesses, things are a little different. Manufacturers can also prepare purchase orders from their clients and submit them to the PO financing team. Instead of sending suppliers money for finished goods, however, the lender sends payment for raw materials. Then, the manufacturing business uses those raw materials to create the necessary products for customer orders.
How Much Does PO Funding Cost?
The costs of PO financing vary depending on your sales volume and the credit rating of your customers. Only you can decide if the convenience is worth it. For many businesses, not having to micromanage inventory levels or worry about loan debt provides substantial benefits.