December 20, 2022
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Survive the Holiday Cash Flow Crunch with Purchase Order Financing
The run up to the holiday season can be the busiest time of the year for many companies with increased sales volume. At the same time, it could also be the most difficult time of the year to pay your bills and maintain healthy cash flow. This is especially true when you receive a large purchase order from a major retailer. For many companies, accounts receivable factoring allows you to maintain a healthy cash flow and ensure that your bills get paid on time, every time. However, what happens when your sales volume doubles or even triples over a short period of time? In situations like this, purchase order financing may be the solution that you are looking for.
What is Purchase Order Financing?
Quite simply, purchase order financing is an advance you receive to produce a large purchase order. The advance may be paid to you or paid directly to your supplier depending on the situation. As the name suggests, you need to have a purchase order, and preferably a large one, although you could also add up a handful of smaller purchase orders. What this means is that purchase order financing is not an option if you are simply trying to build up inventory for sales that you are expecting, but is only an option for a sale that you have an actual purchase order for.
Its also important to keep in mind that purchase order financing is a short-term solution that covers the period of time from when you receive a purchase order until you ship and invoice your customer. It is intended to be used at times of increased volume, but not as a steady stream of cash flow for your business. Ideally it is something that you will use every now and then, but not something that you will always be relying on. It’s the perfect solution for businesses with seasonal sales patterns to help them get through their busy season.
What if I Need a Steady Stream of Working Capital?
If your company is looking for a steady stream of cash flow that is a long-term solution, accounts receivable factoring can provide you with a continuous stream of working capital. By selling your receivables to a factoring company you are freeing up money that would be tied up in receivables for 30 days or more. Factoring is a great year-round solution to your cash flow needs.
How Do I Choose Between Purchase Order Financing and Accounts Receivable Factoring?
While it is generally true that a company can only use a single source of financing, the exception to this rule is that factoring and purchase order financing can actually work together. Typically, you can only use one type of financing solution because you can’t pledge your collateral to two different entities. However, by working with a factoring company that also offers purchase order financing, you are able to get the year-round support you need with factoring, as well as being able to deal with seasonal demand or large, one-time orders with purchase order financing. In fact, in this situation, the purchase order financing loan gets paid off out of the proceeds from factoring the invoices that the order results in. So you don’t have to choose between a consistent cash flow stream and having the ability to procure large orders, you simply need to choose to work with a factoring company that offers purchase order financing.
How Do I Start Factoring with Purchase Order Financing?
Starting is simple, at DSA Factors we have been providing accounts receivable factoring to a wide variety of industries for over 35 years. We are also proud to offer purchase order financing as well to our factoring clients. If you want to get started, you can either fill out our application on this web site, email us at info@dsafactors.com, chat with us online, or give us a call at 773-248-9000. We are a family-owned business that has helped numerous small-to-mid sized businesses grow over the years. Contact us today and we can start helping your business grow tomorrow!
