Purchase order, otherwise known as “PO financing,” is an arrangement that involves a third party agreeing to give a supplier enough money to fund a customer’s purchase order. In some cases, purchase order loans finances the entire order while in other cases the loans only finance a portion of the order.
Users of Purchase Order Financing
A purchase order financing would be a good option for businesses that need to buy items from suppliers before fulfilling a customer order. Businesses that commonly use financing for purchase orders include Distributors, Outsourcers, Resellers, Wholesalers, Businesses with heavily seasonal sales patterns, and Businesses with tight cash flow and a need to purchase materials before fulfilling orders.
Pros of Using Purchase Order Financing
Enables businesses to take on orders that they would otherwise have rejected
Fast and easy financing for businesses
Saves businesses from the time required for collecting payments from customers
No monthly installments
Businesses and owners with bad credit can qualify
Cons of Using Purchase Order Financing
Purchase Order Financing can be quite expensive compared to other funding options
It can send the wrong perception to customers that the business is having cash flow problems
It only covers the costs associated with producing or purchasing physical products
It may not cover smaller orders
It is not very flexible, in that it only covers purchase orders.
Alternatives to PO Financing
The good news for businesses and their owners is that there are several other financing tools that can be used to meet the financial needs and grow their business, especially when considering small business budget template. Some of the common alternatives to PO Financing include Invoice Factoring, Invoice Financing, Traditional Term Loans, Merchant Cash Advances, and Loans from Non-Bank Lenders.
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