If you are part of or own a business that experiences cash flow issues due to growth-related challenges in the business, then you’ll be glad to know that Purchase Order Funding (PO funding) could be the solution.
What Is Purchase Order Funding?
Purchase order funding (or PO Funding) is what your business might look for when it gets a new contract or large product order. PO funding helps businesses to fulfil product orders.
PO funding is an advance from a funder that pays your suppliers for goods you’re reselling or distributing to a customer, and it usually requires a written purchase order. Purchase order costs can be funded up to 100%.
Using PO funding will allow your business to fund payments to your suppliers for manufacturing and transportation before receiving payment from your customers.
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How Does Your Business Qualify?
Your business must sell finished goods (not product components or raw materials) to business-to-business (B2B) or business-to-government (B2G) customers with good profit margins.
Approval depends mainly on the creditworthiness of your customers and suppliers, and your history with them, which means that startups can also qualify. The chances of approval are even better if your customers and suppliers are reputable, well-established companies.
Businesses that have used PO funding in the past agree that it is an excellent way to help their business grow without taking on bank debt or selling equity in their company.
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What You Need To Know
Purchase order funding is funding you receive before goods are delivered to customers and before you’ve been invoiced. If you’ve already delivered goods to a customer and invoiced them, then Invoice Funding is the correct option for you, not PO funding.
This sort of funding suits businesses that resell goods to their customers, such as distributors, wholesalers, resellers, and outsource manufacturers. Importers and exporters also find it useful because the cost of transportation can usually be covered within the funding offer. It’s also ideal for leveraging growth opportunities while maintaining a healthy cash flow, which is very helpful for an expanding business.
How Does Purchase Order Funding Work?
PO funding usually involves a minimum of four different parties. The PO funding process puts the funder between you and the supplier to get the goods, and once the customer has paid you, you pay the funder their agreed fees.
Purchase order funding is easily understood if broken down step-by-step.
You apply for PO funding after your company receives an order from your customer and an estimate from your supplier. We will need the details of the order to prepare your funding proposal.
Proposal & Agreement
Once your application has been assessed, we give you a tailor-made funding proposal that addresses your business needs. If you accept, we sign the agreements.
Funding & Invoicing
We pay your supplier who then manufactures and ships the goods to your customer. You then send your customer an invoice once the goods are received.
Your customer then pays you for the invoice and the funder then takes their share as per your agreement with them.