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What is Purchase Order Financing?

Reviewed by Ty Crandall

November 14, 2023


What is Purchase Order Financing Credit Suite

Your Question: What is Purchase Order Financing?

Does your business have fluctuating revenue? Most businesses do. Sales go up and down; it’s a constant roller coaster. But in the meantime, your business has bills to pay. Purchase order financing might be the answer.

Why Do Businesses Have Outstanding Purchase Orders?

Newer businesses in particular have outstanding purchase orders. This is not necessarily from clients paying late. It can also be from offering generous payment terms. Extra time to pay means clients will take advantage of the extra time you’re giving them.

Why Do Businesses Offer Net 30 and Similar Generous Payment Terms?

New businesses need to get past understandable initial skepticism. Offering longer payment terms is one way to make that happen. It effectively sweetens the pot without requiring that a business offer a discount. So just like a starter vendor, a startup business might offer Net 30, Net 60, or even Net 90 terms to its clients.

Check out our Credit Suite Credit Line Hybrid, where you can get up to $150,000 to help your business thrive.

What is Purchase Order Financing?

Purchase Order Financing Explained Credit SuiteA purchase order is an order form, issued by a buyer to a seller. When accepted by the seller, it is an agreement between buyer and seller, on prices and quantities for a product or service.

Although a purchase order is a positive indication for a business, it can lead to problems for cash flow. Cash flow issues can ripple through a business, and cause problems elsewhere. This is particularly the case when bills mount and a business can’t pay them on time.

Cash flow problems are mainly caused by two things. The business needs large funds to pay its suppliers, to produce the goods for the order. This payment is often required before supplier production.

Cash flow problems also happen because, the end customer usually has lengthy payment terms for the product they are getting. In some cases this can be up to 120 days. Fulfilling this order requires the business to have substantial finance to fund production, until they get paid by the customer.

Purchase order finance is also called PO Finance. It provides funding for businesses with purchase orders to pay their suppliers and smooth out cash flow. Purchase order financing is, as a result, a great option, for those businesses needing a quick and effective way to finance purchase orders. See marketfinance.com/business-finance/what-is-purchase-order-financing.

What is Purchase Order Financing Designed to Fix?

A customer sends over a purchase order when they have agreed to buy from your business. If you’re a small business owner and you receive a purchase order and agree to the terms on it, that purchase order document becomes a legally binding contract between the two parties: you and the buyer.

Sellers send out invoices to their customers. And buyers send out purchase orders to their suppliers. While it’s great news for a small business to get a large purchase order, not every new company has the liquid cash needed to fill every order. This is particularly the case when multiple orders are on the table.

As every small business owner knows, cash shortages are practically a way of life. In fact, 60% of small business owners worry about cash flow problems every month. The last thing any business owner wants to do, is turn away a large purchase order because their company’s cash is tied up.

Rather than miss out on the potential to generate a ton of revenue or worrying about what being unable to fulfill a purchase order might mean for their business’ reputation, many suppliers that find they lack the cash they need to ship goods will turn to purchase order financing solutions. See fundbox.com/resources/guides/purchase-order-financing.

What is Purchase Order Funding in Practice?

At times, purchase order financing covers an entire order. In other cases it may only finance some of it. When the supplier is ready to ship the order, the purchase order financing company collects payment directly from the customer. After subtracting their fees, the company then sends the balance of the invoice to your business.

Let’s Compare Purchase Order Funding Versus Bank Loans

While small business owners used to expect traditional banking institutions to meet their financing needs, banks are lending fewer and fewer dollars in the wake of the 2007–2008 financial collapse. The 2020 Covid-19 recession isn’t helping matters. This is not to say banks no longer fund small businesses at all.

They just tend to be picky, preferring to lend to companies with near-perfect credit scores that have been in business for a long time.

But purchase order financing companies are willing to fund suppliers even if they have less than ideal credit scores. These lenders are more interested in the creditworthiness of the customers that send in purchase orders.

While it takes a lot of time to secure a loan from a traditional financial institution, PO loans are much easier to get. This is especially helpful to newer companies that had a large purchase order sprung on them before they’re ready for it.

Which Businesses is Purchase Order Funding Best For?

Sometimes you might have large orders to fill but don’t have cash, or you want to use your cash flow to pay for the supplies needed to fulfill those orders. Hence purchase order financing is a short-term finance option.

Purchase order financing provides capital so you can pay your suppliers upfront so your company doesn’t have to deplete cash reserves. Purchase order funding allows companies to grow without increased bank debt or selling equity. It also helps you increase market share by ensuring timely deliveries are made to your customers.

Check out our Credit Suite Credit Line Hybrid, where you can get up to $150,000 to help your business thrive.

How Do You Qualify for Purchase Order Financing?

Purchase order financing is very easy to qualify for. You won’t need financials or good credit to get approved. To get approved lenders will typically do a quick review of your outstanding purchase orders that need to be filled. If the purchase orders are valid and the suppliers you are dealing with are credible, you can be approved regardless of personal credit history.

What is Purchase Order Funding at Credit Suite Like?

Get purchase order financing with a team that can help you navigate the nuances of several varying programs. Get approval for up to $20,000. Bad credit is OK. All you need to show are valid purchase orders. Our areas of expertise include production finance for work in process and Letters of Credit for trade finance. This includes import and export transactions as well as domestic trade purchases.

Purchase Order Financing is Ideal if You Have Credit Issues Now

Our purchase order financing program is perfect for business owners who have credit issues. Lenders are not looking for, nor do they require, good credit to qualify. You can even be approved even with severely challenged personal credit and poor credit scores.

You can be approved regardless of personal credit quality, even if you have recent derogatory items and major collections on your credit report. Lenders truly don’t care about your personal credit. Rather, they care more about the reputation of your supplier. This is one of the best and easiest business financing programs you can qualify for.

You can get really good terms even if you have severe personal credit problems.

Purchase Order Funding Equals Fast Funding

Get pre-approval in 24 hours with purchase order financing from Credit Suite. After the lenders review your purchase orders, you can get initial approval and funding in 2 weeks or less. You can act quickly to fulfill orders and won’t have to pass up on business.

What are the Benefits of Purchase Order Financing?

You get 24-hour pre-approval. Get funding for as much as 95% of your purchase orders. Easy purchase order review for approval. You will pay no application fees.

You can get approved with very bad credit. Go from application to funding, in 2 weeks or less. Get approved with no revenue requirements. Rates typically range from 1 – 4%.

Check out our Credit Suite Credit Line Hybrid, where you can get up to $150,000 to help your business thrive.

What is Purchase Order Financing: Takeaways

Over half of all businesses have cash flow issues. Outstanding purchases orders can be the cause. For newer businesses looking to build relationships with customers, offering more generous payment terms can help them get business. But that means purchase orders go unpaid for even longer.

With purchase order financing, a PO financing company loans a substantial portion of the outstanding debt to the business. The PO financing company also collects from the customer. Credit Suite offers purchase order financing. We help you with the complexities of several different offerings. Let’s take the next step together.

About the author 

Janet Gershen-Siegel

Janet Gershen-Siegel is the seasoned Finance Writer and a former content manager at Credit Suite. She has been admitted to practice law for over 30 years, with a focus on litigation and product liability, and is a published author, with writing credits at Entrepreneur, FedSmith.com and BusinessingMag.com.

She has a BA in Philosophy from Boston University, a JD from the Delaware Law School of Widener University, and a MS in Interactive Media (Social Media) from Quinnipiac University.

She regularly writes for Credit Suite, which helps businesses improve Fundability™, build credit, and get approved for loans and credit lines.

Her specialties: business credit, business credit cards, business funding, crowdfunding, and law

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