There are several ways of getting additional funds for small businesses and purchase order financing seems to be one of the very popular ones. Purchase order, or, “PO financing” is an arrangement where a third party agrees to give a supplier enough money to fund a customer’s purchase order. Purchase order loans can be used to either finance an entire order or a portion of it.
Business owners use PO for different reasons, some of which are listed as follows:
Purchasing a new piece of equipment
Purchase extra inventory
Stay competitive on terms to win new business
Avoid out of pocket expense on future purchase orders
Buy materials necessary to deliver a project
Flexible PO financing source without commitment
Using financing for purchase orders comes with its own pros and cons, just like any other funding option.
One of the advantages of using purchase order financing is fast and easy financing. PO also businesses the time required for collecting payment from customers. Businesses and owners with bad credit can also quality for purchase order financing.
As mentioned earlier, purchase order financing has its drawbacks one of which is that it only covers the costs associated with producing or purchasing physical products. PO can also be quite expensive compared to other financing options. It is also somewhat inflexible, covering only purchase orders.
The good news for businesses looking for funding is that there are alternatives to purchase order financing. Such alternatives include invoice factoring, Merchant Cash Advances, Loans From Non-Bank Lenders, and Traditional Term Loans. Other available options are outside lenders and business lines of credit.
The list of funding options for small businesses is almost inexhaustible. However, owners of small businesses are required to assess each of the options carefully to ensure they are selecting the most suitable funding source.