What’s the Difference Between Purchase Order Financing and Invoice Factoring?

There’s an incredible variety of financing options available to you as a business owner. From traditional bank loans to more dynamic options, like purchase order financing and invoice factoring, it can be hard to determine the best course for your financial situation. Learn more about these latter two financing options, and find out how you can grow your small business effectively through competitive financing.

If you’re a manufacturer, distributor or importer, purchase order financing may be right for you. This financial alternative gives you the money you need to fulfill an order. In the age of just-in-time shipping and competitive warehouse space, you may sell items that you don’t physically have in your warehouse.

The best solution for this dilemma is financing your purchase order. If you can quickly purchase the items or materials needed to fulfill the order, you can receive financing to cover this large upfront cost. That way, you can compete for bulk orders that would otherwise be too costly for you to fulfill before receiving payment.

Invoice factoring uses a similar strategy, but for services already rendered. Whether you supply products or services, you typically offer the customer 30 to 90 days to pay your invoice. However, it can be trying for a small business to wait 90 days to receive payment, particularly for large invoices.

Invoice factoring looks at your customer’s credit score. If they’re sufficiently trustworthy, a factoring company will offer you a large percentage of the invoice immediately in cash. This not only gives you money far sooner than you would otherwise receive it, it doesn’t rely on your credit score or come with any strings concerning how you spend your cash.

Both of these options can be competitive choices for any small or mid-sized business. Consider your financial situation and the types of services you provide. If you need financing before you can complete an order, you may need financing for purchase orders. On the other hand, if you’re simply unable to wait for a payment for services rendered or products delivered, then invoice factoring may be right for you.

Whichever option you decide, you’ll receive financing that is far more flexible than traditional commercial loans. Both purchase order financing and invoice factoring are available for many small or mid-sized businesses that may otherwise struggle to receive practical financing for their situation. Take advantage of these excellent ways to leverage your financial investments and take your business to the next level.