How To Use Purchase Order Financing

How To Use Purchase Order Financing

If you are already familiar with factoring and invoice financing, you know that sometimes the best cash advance is against your income, not against a material asset like your property or equipment. Unfortunately, there are some times when your business is busy and you’ve got cash flow needs, but not enough invoices to make the difference. Often this happens due to a large, unexpected order that could be a turning point for your business. Purchase order financing is there for those times, and the good news is that it works a lot like factoring.

Financing Purchase Orders vs. Invoices

The biggest difference between financing order and financing an invoice is whether the work is already done or not. That said, there are a lot of companies that deal with invoices but not purchase orders. In those cases, this product won’t work out, generally. Traditional purchase order cash advance programs are tailored to manufacturing businesses and traders who have to source goods for customers, like those involved in imports.

How To Apply for Purchase Order Financing

Unlike traditional business loans, you don’t need a lengthy business plan or weeks of preparation for a meeting over your loan. What you do need are purchase orders documenting the work, bank statements documenting your finances, and a quick application with a company offering this product. Like financing invoices, it’s designed to be easy, with fast approvals.

For most new applicants, it’s seven days or less between applying and receiving an advance if it’s approved. Once you build a relationship with a lender and its representatives are familiar with your company, it could be as short as 48 hours.

When To Use Purchase Order Financing

Financing through purchase orders tends to be comparable to using your invoices, so if you want to finance for cash flow, you may wish to consider this option. Another strategy is to reserve financing your purchase orders for unusually large orders, where you can more easily write the costs into a quote.

If you finance regularly, the question of whether to use purchase orders or invoices as your go-to is really a question of which gives your business the better deal. That can take some time to figure out, and it still may turn out that you don’t use one or the other entirely, but cycle between them according to where your company is at in its cash flow cycle. The advantage to purchasing order financing, though, is that you can use it on new orders even when you already financed all your invoices.