When is Purchase Order Financing Right for Your Business?

Last Updated on August 7, 2017

Here’s common scenario: a business receives a significant purchase order that would generate substantial profit. But the profit isn’t the only benefit to a large purchase order! It also deepens competitive advantage, boosts brand visibility, and creates a strong customer relationship that could lead to several more purchase orders down the road, along with high quality referrals and recommendations. Sounds blissful, doesn’t it? Well, yes — and no.

when is purchase order financing right for you yes or no

The Drawback of PO Financing

The drawback here is that many businesses — especially small and mid-sized firms that are not sitting on a proverbial “pile of cash,” or that do not have immediate access to a revolving line of credit — are stuck in a vicious cycle: they need sufficient extra working capital to fulfill the purchase order, but until they fulfill the purchase order they won’t have sufficient extra working capital. Fortunately, there’s a business funding solution that can end this dilemma: purchase order financing.

What is Purchase Order Financing?

Purchase order financing refers to an advance that a lender makes to a borrower, so that the latter can fulfill the obligations of a purchase order.  When the invoice is due (or multiple invoices are due), the lender collects payment directly from the end customer.

Per the purchase order financing agreement, the lender keeps the principal, interest and fees, and remits any remaining funds to the borrower.

Is Purchase Order Financing Right for Your Business?

Generally, purchase order financing may be right for your business if the following factors apply:

  • You have a confirmed purchase order in writing from a commercial or government customer.
  • Your orders do not have a guaranteed sale clause or consignment sale clause (otherwise your customers retain the option to return goods to you and get their money back).
  • You do not need more than 80 percent of the total value of the purchase order (e.g. if the purchase order is for $200,000, then you do not need more than $160,000 to purchase the required goods/supplies to fulfill it).  

Finished Goods and Non-Finished Goods

Lastly, there are two categories of purchase order financing to consider: finished goods and non-finished goods.

A finished goods purchase order financing is for borrowers that sell or distribute ready-to-sell goods. Non-finished goods purchase order financing is for borrowers that take possession of goods in either a raw or semi-finished state, and add value so they can be sold. While many lenders only provide finished purchase order financing, National Business Capital offers both!  

Learn More

To learn more about purchase order financing (finished goods and non-finished goods), contact National Business Capital today or fill out our two-minute application to get a funding decision within 24 hours. We will provide you with clear, objective facts so you can make an informed decision on whether this is — or is not — the optimal business funding solution that you need at this time.

If you’ve already applied for purchase order financing with a bank, but have been turned down, you can still get the funding you need! Read our latest eBook “How to Get Business Funding When Banks Say ‘No’” today:

National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!

About the Author, Megan Capobianco

Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.