Cash flow problems have the potential to put your business in a very tough spot. If you don’t have enough cash to cover certain costs, then you could be panicked about what you should do. One thing that business owners can consider is purchase order financing. Read on to learn about what purchase order financing is and why it might be a good idea for businesses with short-term cash flow problems.
Understanding Purchase Order Financing
There are purchase order financing companies who give out money to businesses like yours. They can give you cash for your business in exchange for collateral. In this circumstance, the collateral that you’re using will be orders. The orders that you have coming up can be used to get the cash that you need now and you’ll be able to pay things back with interest.
It’s important to note that most purchase order financing companies don’t pay for 100% of the order. They will expect your business to contribute something and it will usually take one or two weeks to get purchase order financing. This means that it will be a good option in some circumstances and an impractical one in others. If you require cash faster than one or two weeks, then purchase order financing isn’t like a good fit for you.
How to Use Purchase Order Financing Properly
Many businesses use this type of financing to help keep things moving along with orders. For example, you might need to pay a supplier to be able to fulfill an order. The lending company can pay the supplier on your behalf so that the order can be fulfilled. You can then bill the customer as normal and you’ll simply have to pay the purchase order financing company the amount of the loan plus any interest that you owe.
This isn’t a loan that you’ll be able to use to fund services or to help with your general business operations. It’s really only useful for orders and keeping things moving along with that. You also need to understand that this will be a short-term solution to your problems and that using this financing too often will be counterproductive. It’s a good resource to be able to use in a pinch, but it’s only practical when approached in the right way.