Funding for Your Big Order

If you are running a wholesale, you may have often faced cash flow problems while trying to secure large orders. Competing for new business is difficult since clients continuously look out for the lowest price and quickest delivery. In addition to that, to complete these orders you have to use up your cash reserve to buy materials and start production. If you don’t have enough cash for this purpose, then you won’t be able to fulfill the big orders, and it will prevent your business from growing. In this situation, purchase order funding can help you tide over the financial difficulty. After receiving funds, you can afford to pay your supplier, and go ahead with the new projects.

How can purchase order financing be a viable financing option for a business? Think of this; when you are in a rut due to weak financial conditions, purchase order financing will enable you to capitalize on new business opportunities. Once the cash flow problem is solved, the large orders can be completed and delivered on time. It will enhance your company’s profitability as well as develop a reputation in the market. Furthermore, with the availability of PO financing, you will not incur additional debt, and your business’ financial liability will not increase. As it is a flexible funding, you can avail it as much as you need to cover expenses.

The basic methodology of PO financing is simple. A third party funding firm takes your purchase order and provides financing to the supplier. With this funding, the supplier will be able to complete the order and do the shipment. In this way, you can fulfill the order on time and receive payment from the client. Then you will pay a small percentage to the PO funding company, and keep the rest as profit. If your business is able to complete large orders consistently, its growth potential will increase significantly. In the future, when you receive large orders, your business will have the financial capability to complete them without any delay. Thus PO financing can be a practical solution to fuel your business with immediate cash that you need to deliver your orders and keep your business growing.

Filling in Cash Void of Your Business

Small businesses have long been fulfilling their financial requirement by taking out loans from banks. Through the economic slowdown, weak profit margins, poor cash to debt ratio, and stringent federal regulations have forced banks to take a more cautious approach while approving loans to businesses. The rejection rate of loan applications is rising steeply which is leaving business owners in a bind. In this situation, companies can benefit greatly from accounts receivable financing.

By using A/R financing, businesses get an opportunity to raise working capital without depending on a bank loan or other conventional sources of debt. Companies that bill their customers through receivables or invoices often wait 1-2 months before receiving payment. This can cause cash shortages to meet the ongoing operations expenses. If the cash flow problem becomes severe, business owners struggle to find a way to bring working capital into the business. This may lead to the company shutting down. To avoid taking such extreme steps, they could find a practical solution to their cash problems. A/R financing or invoice discounting is one such option.

When a company opts for account receivables financing or factoring, it is actually selling its outstanding invoices for instant cash flow. Instead of waiting for 15, 30, 45 or 60 days for their customers to pay on their invoices, they can generate cash flow in a few days (in 4 days). Factors are companies that buy receivables from a company looking for immediate funds. These invoices are purchased at a discounted rate, typically between 2.5% and 7.0%. The balance amount of the total fund is remitted after the factoring company collects the invoice amount from the customers.

A/R financing is quite useful for a business having a large volume of receivables. By working through a factoring company, it receives advances (usually from 40% to 90%) of an invoice. The factoring company assumes the responsibility for collecting invoice amounts from the business’s customers. From a broader perspective, A/R financing helps capitalizing on the growth potential of a business by providing a quick solution to the cash shortages.

An Ally Who Can Show you the Money

The lending machines are holding back money. The green currencies are gradually vanishing from the business wallets. Sounds like a movie named ‘Nightmares on the Wall Street’? No, there is no such movie actually, but the nightmares could still be there. When the economy is stumbling and struggling to get up like a toddler, the government keeps imposing stringent policies, and the banks are denying loans, then how could we live in a make-believe utopian world? In this economic crunch, you need a friend or ally that will pull you out of this. Here we are talking about the invoice factoring companies to whom you can sell your account receivable invoices and get equal value of cash. This friend of yours will not bite a share of your equity fund, will not even pass over a financial liability to you by giving loan, and neither it will tie you up in a long term contract.

This piece is not being written to make you pessimistic; rather the purpose is to tell you about a helping hand that can pull you out if your business is in the middle of a financial mess. Due to weak revenue generation and lower level of profits by the businesses, banks have tightened up their lending policy and rejecting more loan applications than ever. In that case then, what about the cash flow your business needs to pay off the employees’ salary, buy inventory and incur other operating costs? Don’t worry though. It is still not that much of a reason to have sleepless night. And also, forget about the nightmares. You will business will still rock! A good factoring company is all you need.

For providing invoice factoring services, a factoring firm would just charge a discount fee. You might be wondering what about the invoice amount? You need not worry about that. Once you get the cash against your invoice, you need not pay it back like a loan. The outstanding receivables would then be the factoring company’s due, and they will collect it from your customers after they validate the invoice (s) once the terms like 15, 30, 45 days etc. get completed. So, in the whole process, you will get money by selling your assets (invoices) and not by taking any loan.

Now, during this reeling economy, even if you give extension to your customers on the invoices, you still can manage to tide over financial difficulties if emerges meanwhile. So, you need the ‘fair weather friends’ like the banks when you can have a reliable shoulder to carry you through? You can ask your ‘factoring’ friend using the famous ‘show me the money’ phrase as Tom Cruise did in Jerry Maguire.