Problems with PO financing and loans and possible alternatives

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. In some instances, purchase order loans will finance an entire order while in other cases they may only finance a portion of it. 

Uses of purchase order financing and loans

PO financing and loans can be used for a wide range of purposes as highlighted below:

  • 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

Pros of Using Purchase Order Financing

Purchase order financing like any other funding solution for small business have their advantages and drawbacks. Some of the beneficial features of PO financing for small businesses are briefly highlighted as follows:

  • It allows small businesses to take on orders they otherwise would not be able to fulfill
  • Fast and easy financing option particularly with parties with a relationship
  • It helps to save time by not having to collect payments from customers
  • No monthly installments are required
  • Business owners with bad credit can get financing with PO

Cons of Using Purchase Order Financing

  • It can be quite expensive compared to other financing options
  • It constitutes reputational risk to the business as customers may assume that the business has cash flow problems
  • It only covers the costs associated with producing or purchasing physical products
  • It may not cover smaller orders
  • It is not very flexible, in that it only covers purchase orders; and cannot be used for anything else, such as other business expenses

PO financing is not the only available option with several other alternatives available to small businesses that find PO financing unsuitable. Some of the other options include invoice financing, traditional term loans, merchant cash advances, business lines of credit, and loans from non-bank lenders.

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Contact Person: Viola D. Hayes
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City: Philadelphia
State: PA
Country: United States