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Understanding Purchase Order Financing for Businesses

May 14 2011

An illustration of a company's supply chain

Image via Wikipedia

With the recent financial turmoil that has hurt even the most stable enterprises, small business are having difficulty acquiring the credit they need to push their company forward. In light of today's uncertain times, many conventional lending institutions have grown hesitant to the idea of lending to small business enterprises. It is in this scenario that purchase order financing becomes a necessary tool to help successful companies fulfill their goals and grow.

PO financing is a highly effective financial tool that gives small scale businesses easy access to capital funding especially needed to facilitate large transactions. As suppliers require upfront payments, those with limited financial means can finance purchase order contracts through a third party lender.

As PO providers make a significant investment in your company, they of course implement stringent measures to ensure their security. In applying for purchase order loans, it is important to keep in mind that these lenders will base their decision on the soundness of your transactions. They will be delving into your company's financial liquidity, business credit, invoices, sales, as well as profits to determine whether your business and vendors have a track record of paying back investments.

In today's setting, PO financing is routed through third party providers who will provide your suppliers with the financial resources to facilitate your orders. Once the transaction has been completed, the financing company will then ask for their reimbursements as well as bill you of their accompanying fees which is often pegged at 5% of your total sales from said transactions.

In a typical setting, purchase order financing works under this process:

1. Receipt of multiple or a large scale order from a trustworthy and reputable client.

2. You present the pertinent documents along with your PO application to a lender.

3. Once approved, the purchase order provider will then prepare the necessary bank drafts to facilitate payment to your manufacturer.

4. Your PO lender will then directly pay your suppliers as well as make arrangements for the shipping of the goods.

5. The merchandise is then delivered to your client.f

6. Upon delivery, your company will then make the necessary collection invoices to bill the client.

7. Once collection has been made, your will then complete your part of the bargain by reimbursing your PO lender as well as pay the fees accorded to you by your lender.

Purchase order financing is a means to an end. Without it, your business' growth may become stunted due to unavailability of funds. Show that your company can be a big success, and you will get the financing to grow by leaps and bounds.

If you are ready to begin finance purchase order processing, and want to know more about the purchase order loans process, then stop by PurchaseOrderFinancing.com for detailed explanations of the steps you need to take and insight into who you can work with.

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