Small wholesale businesses that resell products often face a dilemma when they receive large orders. Their suppliers typically insist that they prepay for goods, but they may not have enough financial reserves to handle the transaction. This creates the risk of competitors taking over the orders. A solution to this difficulty is purchase order financing, which enables companies to accept large orders, fulfill them, and grow their businesses. Here are some details about this method of funding so you can assess whether it meets the needs of your company.

PO Financing Basics

Your application to the PO financing company includes a copy of the purchase order and information about your supplier. Once the application is approved, the financing company directly sends payment to the supplier, which then delivers the needed products to your client. Often customers have 30 to 60 days to make their payments; if companies need funds quicker to strengthen their cash flow, they often use invoice factoring along with PO financing.

Qualifying for PO Financing

PO financing works well for companies that do not manufacture or assemble goods but instead deal in finished products. Your orders should have no guaranteed sale or consignment terms, and they should not be cancellable. Your minimum gross margin for the transaction should be at least 25 percent, although this specific figure sometimes varies, and the orders should be for at least $100,000 dollars. It is also important that the credit ratings of the clients receiving the order should be good.

Advantages of PO Financing

One of the most important benefits of PO financing is that it enables you to accept large orders which you would otherwise have to turn down. This allows your company to prosper and grow. PO financing is available to new as well as established companies as long as they qualify. After application approval, the funding can be obtained very quickly, and the financing process for future orders will occur even more rapidly.

For more advice on PO financing, contact Skogen Capital Lending.