Purchase order financing is the new kid on the block
Posted by MJim. on May 5th, 2017
Usually, the business enterprises approach the banks for regular working capital finance. The banks are also happy to sanction regular credit limits based on the past performance and the future projections of the business enterprise. It may happen that the business might suddenly land up with a special Governmental contract. There could be a purchase order as well from a reputed company. Under such circumstances, it can become difficult for the banks to raise immediate finance to meet its urgent working capital requirements. The banks might just ask for more collateral. They may also insist on checking of your credit report. In case you have an adverse credit report, you may find it tough to get access to timely credit. Under such circumstances, the factoring companies can come to your rescue with their plans of purchase order financing.
Whenever you get a big order from a Governmental organization or a big corporate company, they issue a purchase order. You have to carry out the order and raise an invoice on their behalf. They make you the payment according to the terms of the contract. Usually, such contracts can take ninety days to fructify after the raising of the invoices. You have the factoring companies to finance these invoices. In this way, you can realize the proceeds of the invoices before the due dates. This can enable you to have access to the funds to cater to your other working capital requirements.
Certain banks and factoring companies indulge in purchase order financing as well. Under this facility, the companies sanction a certain limit depending on the value of the purchase order. You can use this limit to cater to your expenses for honoring this purchase order. As these purchase orders do not come frequently, it can be difficult for the banks to sanction a consolidated limit for the same. Hence, the factoring companies such as Interstate Capital Inc. can be the best place for you to get immediate finance.
There are various advantages of purchase order financing. You can get access to immediate funds to take care of the working capital requirements. You need not face a working capital crunch at any point in time. The facility entails you to pay a small fee. However, it is always better to pay the fees and avail the advantages of the purchase order financing facility.
The best part of the entire exercise is that the factoring companies do not perceive much risk in financing purchase orders. They take the precautions to confirm the genuineness of the purchase order before deciding to finance against the same. They take care to ensure that your client has a good rating before financing the order because he is the person responsible for the payment. Therefore, you can get finance even if you have bad credit.
This facility is any day cheaper than the credit cards or the traditional bank finance. You get immediate access to cash thereby enabling you to meet the working capital requirements for fulfilling the purchase order.