Most manufacturing company owners remember when they received their first large order from a retailer. After the initial excitement, worry set in as they wondered how they would afford the supplies they needed to fulfill the order. If you find yourself in that position today, purchase order financing can help. You receive the funds you need promptly, and your retail customer receives their order on time without ever knowing that you needed to secure purchase order financing to fulfill it.
The Basics of Purchase Order Financing
This financing option can be ideal for companies that produce only goods, not services. You should expect to earn a profit margin of at least 20 percent on the order to make the interest charges worthwhile. Keep in mind that you must use the funds from purchase order financing only to buy supplies to complete a customer order. You should not apply if you intended to use it for general cash flow purposes.
When reviewing your application, the company offering purchase order financing obtains a credit report on your customer. Therefore, it is important to only select orders for financing from reliable customers. The process is much faster than a bank loan that can take up to a few months to approve even without any delays. In most cases, you receive the funds from a purchase order advance within a few days.
Benefits of Financing Your Purchase Order
Without enough funds to fulfill an order, you risk having to turn it down. Although the retailer customer may be sympathetic to your struggle, you may not get a second chance with the same company. The newer your company is, the less you want to turn down a large order since you never know when you might receive another one.
If you’re tempted to pay for the supplies with a credit card, consider you will need to start repaying it before you receive payment from the customer. Like most manufacturing businesses, you probably can’t afford a cash flow lag of up to 90 days.
POM Capital & Funding Services offers purchase order financing and other alternatives. Please contact us to learn more.