All businesses hope to be able to achieve a level where they are receiving as many orders as they can handle. However, without the right infrastructure (or elements therein) set up, you may run into problems if you get too many orders to handle. The latter can be very costly if you cannot fill these orders; this is where purchase order financing comes into play. Let’s break down the situation in a series of short steps.
Supply Chain Problems With Large Orders
This is where large orders impact small businesses: the supply chain. Generally speaking, there are two degrees of freedom between your company and a manufacturer. Thus, when a corporation makes a large order from your company, you have to manage two different businesses along your supply chain to satisfy said order.
The practically pervasive fact that SMBs have to prepay for their orders from manufacturers is where the problem takes off: you may not have enough capital on hand to satisfy the large order and take care of your daily cash needs.
Where Purchase Order Financing Shines
At its core, purchase order financing is very similar to factoring with your accounts receivable. You find a lending company that satisfies your needs for purchase order financing, and have them pay your cost in full. Then, the merchandise can be delivered promptly. Whereas the finance company waits for a month or two before all invoices are finally paid in full. You are charged an administration fee of about 3%. This doesn’t vary much by PO Financing company, for obvious reasons of competitiveness.
Ultimately, purchase order financing is excellent at allowing small businesses to manage their cash flow. The fee tends to pay for itself, the more orders you have. You can only employ the funds you receive for the portion of your large order that needs financing. Plus, your overall transaction costs are diminished.
Contact Achieve Capital Advisors for more information today.