If your company sells to other businesses, you can likely benefit from a little tool called purchase order financing. This type of financing involves using your clients’ purchase orders to qualify for direct funding for inventory. Thanks to PO financing, many manufacturers, resellers, distributors, wholesalers, and other B2B companies have greater flexibility for meeting client needs. Is this modern financing option a good choice for your business?

The Advantages of Purchase Order Financing for Today’s Businesses

Many companies have to monitor their finances carefully to keep cash flow balanced. There are so many things to spend your capital on and you have to make sure you have funds for inventory. This is one of the attractive things about PO financing; it lets you bypass inventory management and shipping completely.

You don’t have to stress about whether you have too much or too little inventory because PO financing gets the exact amount of product to your clients on time, every time. Not only does that mean satisfied customers, but it also means you have more time to focus on other aspects of your business. You don’t have to risk as much money on balancing your inventory levels precisely.

This is related to a third benefit: being able to take on new clients and new opportunities without hesitation. Without sufficient financing, some companies end up turning down what could be great opportunities because they simply don’t have enough savings to purchase such a large volume of inventory. When you have PO financing, there are virtually no limits to the number of products you can ship or the size of businesses you work with.

Things To Consider

Like any type of financing solution, purchase order financing also has costs that you need to consider. There is a cost associated with each transaction, which can add up to a higher total cost than applying for a traditional loan to purchase inventory. This isn’t surprising because of the convenience associated with this service. Also, qualifying for PO financing is much easier than with a conventional loan.

To overcome this cost, it’s generally best to use PO financing for transactions that have a higher profit margin. That way, you can absorb or pass on the costs of this type of financing while remaining competitive in the market. It’s also important to note that PO financing only covers the products themselves, not payroll costs for employees or similar things. That said, manufacturers can also use PO financing to get raw materials to complete client orders.