Purchase order financing is sometimes used by companies when they are having cash flow problems. When they are unable to come up with the money to pay for materials from their own cash stores, working with a company that can aid them in doing so is extremely helpful and sometimes necessary so that they are able to meet any contractual obligations they have with a customer.

PO factoring can be a crucial component in a company’s success. This may be especially true if they are having financial problems. Many businesses in this situation are hesitant about taking on new customers and may have difficulties servicing the ones that they have. This is because often times it requires money to do so. If they don’t have it and are not able to receive a loan, they will find them selves in a perilous position, unable to make money they might desperately need. Fortunately, purchase order financing gives them an out.

The process works like this. After determining that a company has an iron clad contract with a customer, a Factor will pay for the materials that business needs to fulfill their order. The materials are then shipped to the company, where they are used to produce whatever product they are contracted to. After they complete, deliver and are paid for it, they share a portion of the proceeds with the Factor. This allows the business to get what they need in order to service their customer. The Factor benefits because they are paid for their services.

This sort of arrangement can be especially beneficial for large companies. This is because companies of this size often have orders that are very big and thus costly. If they are unable to put up the money necessary to pay for the materials they need to satisfy an order, they lose business and revenue. Rather then use the cash they have on hand, working with an experienced factoring company makes good, financial sense. Monies that would go toward purchasing materials could be spent on other aspects of a business, including marketing, fixed costs and debt.

Large companies, especially manufacturing ones, looking to save money, may want to look into purchase order financing. It allows them to obtain all of the materials they need to provide goods to their customers without using any of their own money. This can be quite beneficial. It ensures that they will be able to service current and future clients, without spending any of their own capital. PO factoring is one of the only ways to accomplish this without taking on new debt.

a. Purchase order financing is easy: For the most part, this sort of financing is fairly easy. There are not a lot of hoops to jump through, like there are with bank financing. As a long as a company has credit worthy customers and invoices to sell, it is not incredibly difficult to find a Factor to work with.

b. Purchase order financing is fast: Such financing is incredibly fast. In fact, it is one of the quickest ways to get cash. If a business already has an established relationship with a factoring company, they will often times be able to get money within 24 hours. If it is a company’s first time working with a particular factor, then the process may take little longer, roughly 4-7 days. This still is incredibly fast and allows company’s to quickly infuse much needed cash into their business.

c. Purchase order financing doesn’t rely on a company’s credit history: Companies with average-to-poor credit histories will have a very difficult time getting a loan from a bank. If they use purchase order financing then this is not even a concern. This is because factors only consider the credit worthiness of a company’s clients because they will be who the Factor will be collecting money from. They don’t care about the business’ credit who owns the invoices.

d. Purchase order financing allows companies to raise money without debt: Many companies are forced to go into debt in order to keep their business afloat, make big purchases or to finance growth. This can be dangerous and puts a business at risk of going under if they are not able to pay back what they owe. One of the great things about purchase order financing is that it is a way to generate cash without taking on new debt. The Factor subtracts their payment from the collected invoices.

e. Purchase order financing is available to new businesses: New businesses will find it difficult to get a bank loan. Banks simply are not interested in loaning money to companies that have not been in business very long. This can put such businesses in a bind. There will likely come a time when they need money but aren’t able to secure it through traditional means, such as through a bank loan. Often times, such companies turn to credit cards, quickly racking up expensive debt. A much better solution might be to use purchase order financing. It allows businesses to quickly raise cash without expensive debt (credit cards) and without relying on a bank.