Purchase Order Financing

Purchase order financing is a very specific type of financing that is available for companies that accept purchase orders from their customers. Lending institutions will often provide special financing based on a large purchase order from a client that can be vetted. By that I mean, that the purchase order financing then becomes based on the ordering customer’s credit, not yours.

P.O. Financing Rules

This has its own set of rules and regulations that are easy to follow once you know them. If you have a fairly new company, large orders are very exciting but also frightening if you don’t have the finances in place to handle the order. Again, your lending institution or a new source of money can provide the needed funds.

Be Careful How You Use It

You do not want to tie up your business lines of credit with the inventory for one order. This will do your other clients a huge disservice and once you have fulfilled your dream P.O., you will find yourself with fewer customers and a smaller business base.

It is to your advantage, after you have gotten the purchase order financing, to set up a special account where the payments against the P.O. are received. That way, you, your accountant and your lending institute will have a clear and distinct record of how the money was paid back to the bank and a clear picture of the interest that you have paid. There will never be any question of the amount paid or the date paid back on the purchase order financing.
Once you have successfully negotiated and executed this step of business finance, you and your company will be a much more valuable customer for any bank or lending institution to have in their portfolio.