Understanding the Criteria for Purchase Order Funding

Purchase order funding might be your key to running a successful business in South Africa. There’s no doubt that it comes with a range of benefits, including improved cash flow, eased financial pressure, and more flexibility to grow your business.

However, purchase order funding cannot be provided to just anyone. There are some key requirements that a business needs to meet before its PO funding can be approved. It’s important to understand the criteria you need to meet before you start the process so that you can understand what to expect. 

So, how do you qualify for PO funding? We’ll dive into all the key details in our article below.

What is the Eligibility Criteria for PO Funding?

This type of financing is not only easier to qualify for than conventional loans, but it also offers several unique advantages for growing businesses. PO funding is accessible because it focuses on the strength of the purchase order rather than the business’s credit history. This makes it easier for newly established companies or those with poor credit scores to qualify for PO funding. 

Unlike traditional business loans, in most cases, PO funding does not require a personal guarantee or substantial collateral. Instead, it is secured by the purchase order itself, which means business owners don’t need to commit their personal assets.

Important Criteria to Qualify for Purchase Order Funding

Financial institutions set out their requirements for purchase order funding. While each requirement may vary from one institution to another, the majority consider the same factors. We’ll give you a brief overview of the criteria your business must meet below.

Purchase order details

The purchase order should be clear and concise, outlining the specific products or services being ordered, the quantity, the total value, and the payment terms (net 30 days, etc.). This gives the financial institution a clear picture of what is required for the purchase order.

Industry and business type

The attractiveness of purchase order applications to financial institutions can vary by industry. Generally, funding institutions are more likely to approve purchase orders from blue-chip companies, as well as from government entities and agencies at various levels. Additionally, the size of the purchase order and the projected profit margin can significantly impact the likelihood of approval.

How to Increase Chances of PO Funding Approval

Increasing the chances of PO funding approval involves a combination of strategic planning, clear communication, and proper documentation. Here are a few tips on how to increase your chances of PO funding approval:

1. Clear and Detailed Documentation
   1. Ensure that the PO and supporting documents contain all necessary details, such as quantities, pricing, delivery timelines, and payment terms.
   2. Avoid underestimating or overestimating costs and timelines. Provide realistic and well-researched cost estimates and supplier quotations.
2. Improve your Purchase Order details
   1. When you receive a purchase order, always verify its validity with the issuer.
   2. Always choose reputable suppliers. Research their credibility by checking online reviews, ratings and general feedback from their customers.
   3. Be open about any potential issues related to the Purchase Order and/or its suppliers. Financial institutions conduct thorough due diligence and will likely identify any complications on their own.

Conclusion

When applying for purchase order funding, it’s crucial to consider the financial institution’s perspective. Lending money to a business involves significant risk, which is why the requirements for PO funding applications are stringent. To boost your chances of approval on the first try, be sure to follow the tips provided to enhance your application’s success.