Figuring out how to increase and grow your business is a constant battle. This is especially true if what you make and sell is costly to manufacture. Many times you may not have the cash flow to buy the supplies you need in order to make the product you sell in a quantity large enough to really increase growth. Add to this problem the fact that your business is relatively new and you are probably leveraged to the hilt, and it is likely you would have trouble getting traditional bank financing to solve the cash flow issue.
Fortunately, there are alternatives to bank financing that are accessible to most any business owner. One of the best that suite the above scenario is purchase order funding or PO funding/financing. PO funding allows your business to take on bigger jobs than you would otherwise be able to fill when cash is tight. It gives you the ability to go into a big deal and accept a really large order without fear that you can’t come up with the money to cover operational costs.
PO funding isn’t a loan. Bottom line, it is really an advancement on money that will be paid in the future. The PO funding company advances you the money to pay suppliers, or pays them directly, so you have what you need to fill an order for a client. Then the PO funding company takes the invoice billed to the client for the order and collects on it. They take their fees for this service and pay you the rest. You get what you need to make and fulfill the order, and you get the profit from the sale of that order after you’ve paid the PO funding company that made the sale possible.
Since loans can be rather costly and difficult to obtain, especially if your business is new or doesn’t have great credit, PO funding can be the saving grace that keeps your business going. It is terribly stressful to turn down business or reduce your sales efforts because you can’t keep enough capital in-house to fund the jobs that are in progress. When your clients aren’t paying you for 30-60 days on average, but you have to lay out funds up front for supplies, it can feel like you’re leaking money. PO funding pays your suppliers and gives you the ability to really go after bigger jobs than you would ordinarily consider because you can cover all the associated expenses.
PO funding usually includes collections, too. If your clients are slow to pay on outstanding invoices, the PO funding company will go about collecting from those clients. This frees you up, again, to concentrate on servicing all your clients and going after more business to grow.
PO funding does not require top-notch credit ratings. Newer businesses have a really hard time generating the kind of excellent credit rating required to get bank financing. PO funding companies look at the creditworthiness of your clients and suppliers rather than your own. It’s a win/win solution – you get the operating capital you need to grow your business and you end up increasing your own creditworthiness in the long run.