It can be your company’s worst nightmare when they land a big purchase order from a customer, but cannot fulfill its financial obligation. This scenario is what any small or large business owner fears. Many companies find themselves having to take out bank loans or credit cards just to fill these financial voids. What happens if the banks turns you down? Do you deny the customer? You could potentially be losing a relationship with this client. Businesses are starting to turn to purchase order financing. It has boomed in the last two years making it more popular than traditional banking loans and can help your company grow in no time.
To know whether or not your company should use P.O. financing, you should first understand what purchase order finance means. Let’s go back to our scenario. You just got turned down from the bank, so you decide to turn to an alternative lender. You set up an account and they finance the supplier’s expense of your purchase order. The lender directly pays the supplier on your behalf. Once they are paid, your supplier manufactures the product and delivers. The transaction settles when the client pays for their goods. It is fairly simple and less of a headache than having to go directly to a bank.
It can be difficult when a bank turns you down for a loan. In this day and age, credit is just as important as the air you breathe. P.O. financing helps when credit can be an issue. “We don’t care about our client’s credit score or if his business is completely underwater,” says Richard Eitelberg, founder and president at purchase-order lender Hartsko Financial Services in New York. “We look only at the transaction we’re financing.”
One company based out of Maryland called CTRL Systems says they found a P.O. lender willing to fund the manufacture of components for the company’s ultrasound- diagnostic equipment. CTRL turned to P.O. loans after seeing sales and cash flow decline, then begin growing again, leaving the company cash-strapped. The company has done two separate P.O. loans to cover component manufacturing costs, each time borrowing less than $100,000.
CEO Robert Rosche of CTRL says “This relationship with the P.O. lender gives us the confidence that we can go out and secure significant new business and fulfill those orders,”
It is no secret that big jobs cost your business big money. George Tarrab’s company, Slider the Unscooter is seeing revenues of almost three million dollars due to P.O. financing. The benefits are huge for any business in need of cash. It allows you to take on big orders and new business from clients even when they do not have the operating capital on hand to fund the job.
When deciding whether or not your company should utilize P.O. financing, always remember that your business can only grow with the products needed to sell. To ensure great customer satisfaction, you will need to invest. Purchase order financing helps you do that so the worry of losing a major client no longer exists.