Purchase financing helps distributors and resellers that need funds to fulfill large purchase orders. It helps pay for the supplier expenses associated with the order. It enables your company to deliver the goods and fulfill the order.
Once a transaction is approved, the finance company pays the supplier directly. It is an excellent funding solution for businesses and organizations that lack the funds to buy the inventory needed to fulfill orders. In this type of financing, the NBFCs will pay your supplier to manufacture as well as deliver the goods to the customer.
How Purchase Financing Helps in Business Expansion
It has several advantages over other solutions. Here are a few.
#1: Allows to take new large orders
The main advantage of using purchase order financing is that your company can take on large orders. This ability allows you to maximize your business growth. It is a good choice for business owners who are having a hard time being approved for a loan and within a reasonable time. Purchase order loans are usually easier to qualify for. The purchase order can function as collateral to back your loan.
#2: Availability to new companies
This financing is available to new companies and small businesses as long as the company and the order meet the qualification criteria. This benefit is an important advantage over loans and lines of credit that are available only to established companies that have assets, cash flow, and a track record. Startup owners often find themselves in a catch. They have a hard time getting funding because they do not have a record of accomplishment, but they are in rapid growth mode. If a startup turns down even one customer’s order, it can seriously hamper the NBFCs growth prospects. This type of financing helps you keep all your customers satisfied while shoring up your cash flow.
#3: Covers up to 100% of supplier costs
It can cover up to 100% of your supplier costs. This benefit allows your company to fulfill a large purchase order even if the company is under-capitalized.
#4: The line grows with your business
The line can grow as your business grows. Unlike loans and lines of credit, your line is not constrained by your assets. The size of the line is determined by the strength of the purchase order, the credit quality of your customer, the track record of your supplier, your profitability, and your ability to execute the order. You have control over many of these variables and, therefore, over the size of your line.
#5: The line can be set up quickly
A purchase financing facility can be set up quickly, assuming that you give us a full application package. Generally, the first transaction can be funded in one to two weeks. Subsequent transactions can be funded faster. This benefit makes this financing an ideal solution for companies that need quick funding. It is technically not a loan, even though you are borrowing money. When your cash flow dips, you can trade in outstanding purchase orders for funding.