Is Your Company A Good Candidate For Purchase Order Funding?
Many companies consider purchase order funding as a way to raise capital for their businesses. It’s important to note that purchase order funding is for a specific type of business: for other businesses, methods such as AR funding or Merchant Cash Advances are actually ideal.
Purchase order funding usually requires a number of conditions to be fulfilled before a business can be considered. Many businesses fall into this category, but many don’t:
- You buy products wholesale and sell them without modification (such as retail)
- Your business doesn’t manufacture product
- You have fairly high margins (20% and above is the most common)
- Your suppliers have a strong track record and your customers have a good commercial credit history
- Purchases can’t be cancelled or consigned
If all of these are true, then purchase order funding may be the ideal set up for your business. When making purchase order funding arrangements, the lender will do their due diligence on suppliers and clients to make sure that everything is operating smoothly (i.e. ensuring that all the business going on is legitimate). After these steps are taken, the lender will offer a capital arrangement that works for both the business and the lender. That’s it!
While that sounds simple enough, the biggest problem for businesses looking for capital is that many businesses do not actually fit the paradigm above: usually large, brick-and-mortar businesses are involved in purchase order funding. So if you aren’t sure if your business fits the above, it is good to have other potential venues open for them. Some businesses would do as well with accounts receivable financing or other potential options. The best way to find out what’s best for your business is to contact a professional today and see if purchase order financing is the best capitalization solution for your business.