Purchase Order Financing Considerations

Purchase order financing could be the answer your business needs for improved cash flow that unlocks business growth. It’s a powerful funding strategy to have at your disposal when your business needs a rapid cash injection to meet contractual obligations or complete projects — from paying suppliers to buying new equipment.

In this article, we will cover some of the most important considerations when choosing PO funding for your business.

Focus on Your Business Financing Needs

Before you consider applying for PO funding, conduct an internal review to asses the current state of your business. For example: What are your goals for the next 3, 6, or 12 months? How’s your cash flow and financial situation? Do you need capital to expand your operations?

Purchase order funding needs to be approved based on the business’s current situation. That means you need to knows your business inside and out to ensure that your application will be approved. 

Furthermore, you need to create a plan and strategy to ensure that you’re able to pay back your purchase order lender. Your ability to do so will also strengthen your case in getting approval for your request.

Choose the Right Purchase Order Financing Lender

It’s important to do your research beforehand and find a PO funding provider that suits your business. You also need to make sure that the lender you choose is reputable and legitimate.

It can take some time to get through this initial research phase, but it’s crucial to get it right. Draw up comparisons between the interest rates, fees, and repayment terms from different PO funding providers to find the one that gives you the best offer.

Once you’ve got a shortlist, double-check each one by looking into their reputation, experience, and customer service. Doing your research will ensure that the lender you’re partnering with is  trustworthy  and a funding partner that you can rely on for years to come.

Consider All Possible Risks

While purchase order funding seems like an easy solution to all your business’ problems, it also comes with a lot of risks. Understanding (and reducing) these risks is crucial to making it a success.

Firstly, there’s credit risk. This is the possibility that the buyer may default on their payment obligations. To mitigate this risk, you need to ensure that your creditworthiness is good. That comes from your financial stability, payment history, and industry reputation.

There’s also market risk. Market fluctuations can impact the value of goods or services, potentially affecting your ability to repay the loan. While this risk may seem out of your control, there are still ways to plan for it. For example, you can diversify your client base, build strong customer relations, and constantly monitor market trends to stay on top of the latest developments. 

Manage Your Cash Flow

Cash flow management is important as it ensures timely bill payments, investment opportunities, and financial stability. Purchase order funding can be a valuable strategy, providing immediate cash access to fulfil orders and maintain a steady cash flow, especially during growth or when you’re faced with unexpected expenses.

Conclusion

Purchase order funding is one of the most effective tools you can have in your arsenal. It’s especially effective considering how uncertain the market and economy are following the Covid-19 panic. There are some crucial factors you need to consider when it comes to purchase order funding, and its important to keep them in mind if you want your PO funding to be a success. Consulting with one of our advisors can provide valuable insights and guidance to make informed decisions.