How to Use Purchase Order Financing to Unlock Capital

Purchase order financing can benefit businesses that need working capital to fulfill customer orders before receiving payment. In this introductory overview, we will define what purchase order financing is, explain how it works, and discuss the benefits of this type of funding.

Purchase order financing can provide necessary cash flow for contractors, staffers, security service providers, and other companies struggling with growth constraints. However, it also comes with risks if not properly managed. By understanding the mechanics and applications of purchase order financing, you can evaluate if it is an appropriate solution for your capital needs.

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What Is Purchase Order Financing?

Purchase order financing offers an alternative means of accessing working capital based on customer purchase orders. Under this financing arrangement, a lender advances funds against the value of outstanding purchase orders so that you can fulfill customer orders without requiring upfront capital.

This financing benefits companies experiencing cash flow limitations but has obtained contracts or orders from creditworthy customers. It allows you to accept new orders that you may otherwise be unable to fulfill due to insufficient funds. Purchase order financing thus provides vital operating liquidity for businesses with steadier cash outflows than inflows.

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How Purchase Order Financing Works

The concept behind this financing solution is simple—a purchase order financing company provides a cash advance based on the value of a purchase order received by the business. You can use this short-term loan to pay suppliers and fulfill orders.

You repay the financing company’s advance once the order is completed and the customer pays the invoice. The remaining profit on the order goes to the business. This capital injection allows businesses to take on new orders without tying up all their working capital.

Unlocking Capital Through Purchase Order Financing

There are a few ways financing companies provide capital against purchase orders:

Advance a percentage of the order value. Typically, 50-80% is advanced.
Only advance against the supplier’s production costs, not the full order value.
Advance more against orders from creditworthy customers.
Subtract any customer deposits from the amount advanced.
Include reserves to cover production overruns or refunds.

You receive funds quickly, often within a few days of submitting the purchase order. This provides working capital to secure supplier deposits and begin order fulfillment.

The Importance of Purchase Order Financing for Businesses

Purchase order financing can provide vital working capital for businesses that struggle with cash flow. You can:

Access capital based on purchase orders instead of waiting for customer payments.
Fulfill larger orders beyond current capacity.
Optimize inventory levels—prevent stockouts or excess inventory.
Meet temporary spikes in demand.
Expand production and operations.
Strengthen business relationships through reliable order fulfillment.
Prevent missed revenue due to insufficient capital.

Get the working capital to fulfill purchase orders and grow your business. Round Table Financial offers fast, flexible purchase order financing so you can take on new orders and expand your operations. Our experienced team makes getting a PO loan quick and easy.

Our Purchase Order Financing Approach

Who Can Use Purchase Order Financing?

Many businesses can benefit from purchase order financing when they have orders but lack the working capital to fulfill them. Some examples include:

Security Guard Services

When a client places an order for ongoing guard services, the security company can get financing based on that purchase order to cover the payroll and other operating costs during the service period. This provides the working capital to pay guards and expenses until the client pays their invoice. It helps security companies avoid cash flow issues that could delay providing timely services.

Staffing Agencies

Staffing agencies can utilize purchase order financing to cover the costs of payroll, benefits, and overhead while fulfilling client staffing contracts. This financing allows them to meet payroll and operating expenses as they place and manage temporary or contract workers for clients. It provides the working capital needed to operate and deliver staffing services smoothly.

Distribution Businesses

Distributors who need to buy inventory to fulfill orders can use purchase order financing. It provides funding to procure stock from suppliers that will then be sold and shipped to meet existing customer orders. This ensures distributors have product availability.

Contractors

Construction companies and contractors can use purchase order financing to fund the materials, labor, and other job costs associated with projects where they have a contract, but upfront funding is needed to start work. This allows them to take on more contracts.

Startups and High-Growth Companies

Fast-growing startups and companies can use purchase order financing to fulfill purchase orders before traditional banks provide financing. This enables business expansion and taking on new customers during growth phases.

Ensure Liquidity and Boost Sales Growth

Maintaining liquidity is crucial for small businesses and startups but can also be challenging, especially when poised for growth. Purchase order financing ensures companies have the working capital to fulfill new orders and boost their growth.

Rather than declining orders due to a lack of cash flow, companies can take on new business knowing they have the financing lined up. This allows them to meet demand, increase sales, and scale up their operations.

The influx of capital from purchase order financing can be a lifeline for companies experiencing rapid growth. The flexible structure gets them the funds they need without major repayment risks if the customer pays their invoices.

The Ease of Purchase Order Financing

Applying for purchase order financing can be much simpler than securing funding through traditional means like bank loans. With purchase order financing, you only need to submit a copy of your purchase order to qualify for funding. There is no lengthy credit check or collateral required. The application process is straightforward and can often be completed entirely online.

Once approved, you can receive funding in a few days. This quick access to capital allows you to fulfill new orders without delay. In contrast, traditional funding options like small business loans can involve extensive paperwork, financial history reviews, and collateral. The multi-week approval process means missed opportunities. For businesses with purchase orders in hand, purchase order financing represents an easy path to the working capital needed to support growth.

Access Cash Quickly With Round Table Financial

Round Table Financial provides a payroll funding solution that gives you immediate access to cash. After processing payroll, you can receive funding the same or the next business day rather than waiting for traditional accounts receivable cycles. Our process improves cash flow by accelerating access to earned revenue and is easier to qualify for than conventional funding methods.

Ready to fund your business ventures? Reach out today.

How to Use Purchase Order Financing to Unlock Capital

What Is Purchase Order Financing?

How Purchase Order Financing Works

Unlocking Capital Through Purchase Order Financing

The Importance of Purchase Order Financing for Businesses