Large orders provide resellers and distributors with opportunities to make sizeable profits and even grow their businesses. However, these companies encounter difficulties in fulfilling orders if they do not have the cash on hand to make prepayments to suppliers. Purchase order financing is a solution to this problem. Here is some information to help you decide if this method of funding is right for your business.

Purchase Order Financing Basics

So, you apply for purchase order financing with the purchase order already in hand. Submit an application to the funding company along with the order, information about your supplier, a finance report about your business’s accounts payables and receivables, and documentation about a similar transaction that has already taken place. Upon application approval and contract signage, the financing company sends the prepayment to your supplier. Then the supplier sends the goods to your customer. After receiving the invoice, your customer sends payment to the financing company. Which deducts its fee and then sends the balance to you.

Benefits of Purchase Order Financing

Ultimately, purchase order financing allows your company to accept large orders. That it might otherwise have to turn down due to lack of funds. Even new or smaller businesses can qualify for this type of financing. The first transaction can be speedily implemented, and future transactions will be even easier. Funding your purchase orders in this manner, you can receive up to 100 percent of the prepayment to your supplier.

Suitable Candidates for Purchase Order Financing

Purchase order funding mainly benefits resellers and distributors that do not manufacture the products they sell. However, instead, resell completed products from other companies. To qualify for this funding, your orders should be for at least $100,000 and have gross margins of 20 percent or more. The commercial credit of your clients should be good. Also, your suppliers should be financially sound and have a favorite product delivery record.

For more advice on purchase order financing, get in touch with Toluca Lake Capital.