3 Things To Know About Purchase Order Financing
Knowing about purchase order financing is crucial if you are a business owner. Purchase order financing, or PO financing, is an excellent option when you receive more orders or sales than you have the inventory to supply. PO financing can be a powerful tool for many businesses, but you want to ensure you know what you are getting into before committing. Here are three things you should know about purchase order financing.
How It Works
The first thing you need to know about PO financing is how it works. This financing differs from other options, like small business loans, in a few ways. Purchase order financing is a cash advance where your lender pays your supplier up to 100 percent of the cost of producing and delivering goods to your customers. While purchase order financing may seem complicated, it can be an excellent option for a business that needs to fulfill more orders than expected. If you have a shortage of cash but no shortage of business, PO financing may be an excellent option for your needs.
How Much It Costs
While PO financing may be an excellent fit for your business's needs, you should consider the costs before committing. Purchase order financing fees are usually charged monthly and can increase the longer it takes for your customer to pay their invoice. PO financing fees range from 1 percent to 6 percent per month. While purchase order financing may be a good fit for your needs, consider the total cost before using this financing option. You'll also want to compare and contrast loan terms between different lenders before committing to financing.
When It's A Good Fit
Another thing to know about PO financing is when it's a good fit and when to consider other lending options. Purchase order financing works well when your business has an unexpected spike in demand, you want to fuel growth in your business, or you have a tight cash flow. This financing option isn't right for every business, but it is often an excellent fit for businesses that rely on outside suppliers. PO financing allows you to grow without worrying about cash flow.
If you are thinking about PO financing, here's what to know. First, you need to know the ins and outs of purchase order financing before committing. Second, knowing how much purchase ordering financing will cost is crucial. Finally, you'll want to consider whether PO financing is the right fit for your business needs.