While Purchase Order (PO) financing offers many benefits to businesses, such as flexibility, its use is unfortunately limited to specific companies. To help you understand this, we discuss what PO financing entails to help you determine if it is a perfect fit for your company.
Requirements of Purchase Order Financing
Purchase Order (PO) financing requires companies to meet specific conditions, a factor that may work against businesses that fall outside of these essential criteria. These include:
Be in business with commercial consumers who have a good credit score
Have monthly sales of at least $100,000
Post gross profit margins that exceed 20 %
Use a single 3rd party manufacturing supplier or be a product reseller
Advantages of Purchase Order Financing
Some benefits of PO financing include:
It provides the capital needed to fulfill your orders, allowing you to accept more clients.
PO financing helps businesses take on larger orders
When used with factoring, companies need not worry about client payments.
Enables you to put concerns about supplier payments to rest
Clients Suited to Purchase Order Financing
Due to how purchase order financing structures its transactions, this type of financing is most suited to businesses in the reseller sector and wholesale distribution industry. Clients will often be start-up companies in need of working capital to keep up with increased operations during their growth cycles.
Companies That Cannot Use Purchase Order Financing
Businesses that manufacture goods directly will often be excluded from using this funding option. One of the reasons for this is the complexity involved when it comes to manufacturing companies. Businesses in this sector tend to work with numerous suppliers along with orders that involve different quantities. This proves to be a challenging process for managing supplier payments.
The other reason for this exclusion is that the manufacturing process can often lead to defective goods. Due to this, lenders are forced to pay the suppliers and retain the products rather than deliver them. If your business falls in this manufacturing category, other alternatives such as supplier financing will be ideal, giving you access to some of the benefits of purchase order financing.
Hornet Capital Solutions can help you get PO financing, allowing you to enjoy the above-listed benefits. Contact us today for more information on our financing solutions.