Many small businesses have found themselves in the uncomfortable position of receiving a major purchase order from a large company, but they could not fulfill the order because of the huge initial costs involved. This can cause you to lose credibility and possibly customers as well, unless you can find a way around the situation. One excellent solution is to make use of purchase order financing.
How Purchase Order Financing Works
If your business were to receive a large order like the one described above, and you lack the capital to purchase all the materials needed to fulfill the order, you would have the option of working with an alternative lender to solve the problem. When you contact such a lender, the first thing they will do is check out your customer’s credit history, and if it’s found to be creditworthy, the alternative lender will more than likely approve financing for this large order.
The lender would then send either a bank draft or letter of credit to your company, so that you can pay for whatever raw materials are needed to fulfill the order. In most cases, the lender will even pay for the cost of shipping those products to your facility. Once you’ve delivered the finished goods to your customer, you can invoice them for those goods and the cost of shipping.
When the customer pays the invoice, the lender will actually collect the money and take their fee from the remittance, sending the remainder to your company. In situations where your customer pays on terms, the alternative lender might choose to purchase the invoice from your company at a discount. This means you would be paid that discounted amount, while the lender awaits full payment from your customer.
Would Purchase Order Financing Benefit Your Small Business?
Purchase order financing can be a godsend to many small businesses, and if yours is in this category, we’d like to work with you. Contact us at Infinity Lending Solutions, so we can jointly discuss how purchase order financing might help you.