How To Use Purchase Order Financing

Many small businesses know that you can finance invoices for working capital, but did you know that businesses can also finance purchase orders? This niche product exists to allow manufacturers and traders to produce or procure the goods that clients order, providing you with the working capital to do the job so you can take on any order without worrying about your regular cash flow.

Finance Large Orders and Rush Jobs

If you have your regular cash flow management well in hand, financing purchase orders can provide you with the chance to take on unusual orders. Whether it’s a rush job or a client whose next job is an order of magnitude larger than normal, financing the job with its own value can keep you from upsetting your existing cash flow and running into budget shortfalls. After the order is completed and paid, you receive a remainder payment that represents what is left once the advance and financing fees are covered, so you essentially get your working capital up front and profit payment at the end.

Using Purchase Order Financing for Cash Flow Management

If you need a new tool to manage your cash flow, financing your purchase orders might just be your best option. Financing each job to cover its own costs gives you the budget to handle payroll, supplies, and indirect costs without touching your reserve cash or wondering how long you have to wait for payment. With each job funding itself, the timing on invoice payments becomes much less vital to your ability to meet your own financial commitments, and that takes a lot of stress off your administrative time.

Finance Orders Before Starting Work

Whether you use this service as a full budget management tool or a stopgap when opportunities arise, it is important to apply for financing before you start the order. Most programs require the orders to be untouched when applying, and even when that is not the case, it’s best to avoid committing resources until you know you can count on the working capital for the job being covered.

Once you get used to the rhythm of this method of financing projects, it is a very easy tool to use. The key is understanding how it fits into the bigger picture when it comes to your company’s processes and cash flow. Making it a part of your larger financial strategy instead of a one-use tool means knowing you have this resource whenever a job is a great opportunity that you just do not have the cash to handle.