PURCHASE ORDER FUNDING Say “Yes!” To Every Purchase Order
Contact UsIf 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?
There are many challenges that any small business may face. One of the biggest challenges is receiving a large purchase order from a customer and not having enough capital to fulfil it.
In this case, your business may run into some cash flow problems. One way to resolve this issue is through purchase order funding.
Purchase order funding also known as purchase order finance is the provision of the working capital to enable small businesses to do the work that is listed on the purchase order. These purchase order costs can be funded up to 100%. The money is paid back to the lender once delivery is done and the small business receives payment from the customer.
This is a great type of financing solution for any small business in South Africa. By making use of purchase order funding, you don’t have to take out a business loan from a bank. PO funding is a short-term financing option and can be funded up to 100% It’s available to small companies including start-ups.
How Does Your Business Qualify?
In order for your business to qualify it must sell finished goods to business-to-business and business-to-government customers. In addition, all of your customers must have a good profit margin.
Approval of Purchase Order Lending depends largely on the credibility of your customers and suppliers. It also depends on the history and relationship you have with them. To improve your chances of approval, ensure that your customers and suppliers are respectable and well-established companies.
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Contact UsWhat You Need To Know
If your business requires financing before you deliver the goods to the customer and before you invoice them, then PO funding will be used. However, if your business has already delivered goods and invoiced the customer but is awaiting payment, then invoice funding is a suitable finance option for you.
Invoice financing is a way to boost cash flow while you wait to get paid. With invoice financing, the lender gives you a portion of the outstanding invoices. This type of finance is particularly useful for businesses that resell products to their customers. It is also useful because it allows you to cover costs such as transportation which is great for importing and exporting.
4 Step Guide To Purchase Order Funding
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.
Application
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 agreement.
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.
Payment
Your customer then pays you for the invoice and the funder then takes their share as per your agreement with them.
Speak with one of our experts to find out if purchase order funding is the right solution for your business.
Quick summary
Is your business experiencing cash flow problems caused by growth-related challenges? Often, growing businesses in South Africa need access to more cash to complete a customer’s order. Purchase order funding may be the solution you need to prevent losing a customer due to the lack of cash to acquire stock or materials.
We’ve answered the following important questions about purchase order funding:
- How does it work?
- Who uses this type of funding?
- What are the advantages?
- What are the disadvantages?
- Does my business qualify for purchase order funding?
- How does the funding provider benefit?
Continue reading to see whether it’s the right option for your business.
Funding purchase orders is a quick and cost-effective option of funding over the short term. If you would like to know more then get one of our experts to contact you today.
Contact Us1) How does purchase order funding work?
The following parties are involved in the process:
- The company that needs funding to fulfil an order.
- The supplier that receives payment for the order from the PO funding company.
- The PO funding company providing the funding for the purchase order.
- The customer who receives their order thanks to the lender being able to help the company fulfil their order.
Here’s how purchase order funding works:
- You send the PO funding provider the purchase order as well as your supplier’s estimate. Remember to factor in the amount of time the supplier will take to manufacture the products you need as this may have an impact on your funding fees.
- If the lender approves the financing, they will pay your supplier for the purchase order.
- The customer receives their order from the supplier.
- You send your customer an invoice for their order.
- The customer sends payment for the order to the PO funding provider.
- The PO funding provider sends you the balance of the invoice after subtracting the funding and fees from the customer’s payment.
South African PO funding companies have different ways of charging businesses. Make sure you understand how the fees are calculated before agreeing to any PO funding. Other factors to take into consideration are: you must receive your purchase order from an established business-to-business (B2B) or business-to-government (B2G) business; and, the order must be above a certain amount, as stipulated by the PO funding provider, and have a decent profit margin to ensure you’re able to accommodate the funders fees.
2) Who uses purchase order funding?
If your customer places a large order and you cannot provide the full amount for the order to your supplier, PO funding can help you fulfil that order. Businesses that may use this type of funding include:
- Resellers
- Wholesalers
- Distributors
- Outsource manufacturers
- Importers
- Exporters
- Businesses with increased seasonal sales
- Businesses that cannot afford to fulfil a big order due to limited cash flow
Basically, if your business relies on external suppliers for products that you resell, you can benefit from PO funding. With the help of PO funding, you can grow your business and onboard customers that you may not have been able to without the funding.
Keep in mind, that if you have already delivered goods to a customer and invoiced them, then you should apply for invoice funding, not PO funding.
3) What are the advantages of purchase order funding?
- Gives your business the opportunity to leverage growth by providing the funding needed to meet customer needs.
- It’s not too difficult to meet the requirements. Even though funding companies check the creditworthiness of your customers before approving the funding, you don’t need an established business or a high credit score.
- Unlike a business loan, you don’t have to provide a personal guarantee.
4) What are the disadvantages of purchase order funding?
- It’s only a short-term option. Unlike business loans, PO funding providers cannot be paid over an extended period of time.
- Depending on your agreement with your PO funding provider, delays in the payments could increase the cost of the funding. The best way to ensure you don’t incur additional costs, speak to your PO funding provider directly to find out all you need to know about the funding fees.
5) Does my business qualify for purchase order funding?
Funding approval will depend on your creditworthiness as well as that of your supplier. If you have established, reputable customers and suppliers, there’s a greater chance of receiving funding.
The criteria for applying for PO financing are:
- You sell finished goods, not raw materials or components of products
- You sell to B2B orB2G customers
- Your business has high profit margins
Startups can also apply for PO funded provided their customers and suppliers are creditworthy and well-established.
6) How does the purchase order financing provider benefit?
The most important factor to take into account when applying for funding is cost. There must be a certain amount of profit in the deal for the PO finance provider to consider the deal. Depending on the lender, you will be charged a fee or interest.
Unahina Business Solutions simple process
Purchase Order funding for small businesses is a great solution if your sales growth is exceeding your cash flow. Let Unahina Business Solutions provide you with a PO funding proposal. Our application process is quick and easy. Get started with our easy four-step process.