If you are a manufacturer or wholesale distributor, you would know a great deal about managing purchase orders from customers. It takes away a huge chunk of your working capital to fulfill such supply commitments if you are a manufacturer supplying to customers directly. You have to meet your manufacturing cost in addition to the packaging and transportation cost. Similarly, if you are a wholesale distributor, you must bear the cost of procuring the goods from the manufacturer, storing it and then supplying it to your customer. All that comes at a substantial cost and managing that for multiple purchase orders can be difficult without unique funding solutions.
Purchase orders are legally binding contracts
Just as an invoice is a legally binding contract between a seller and a buyer, a purchase order too is a legally binding contract between a buyer and a seller. Like we have invoice factoring wherein you leverage your pending invoice to gain access to business funding, a purchase order can also be leveraged by a supplier to access funding.
As a supplier you need to honor each and every purchase order you receive. Refusing to accept one due to shortage of funds will affect your business in the long run. You can always get alternative business funding by factoring your purchase order/s in quick time and fulfill the order. You will just have to share a part of the order payment as the cost of the funding.
Traditional lenders won’t provide the funds
Traditional lenders simply avoid approving business capital loans to small businesses because of their own theories of risk perception. It all began after the Great Recession of 2008 when the blame for collective mismanagement of credit by the traditional lenders was pinned on small businesses.
The new narrative in risk assessment was that small business funding presented much higher risks for big banks and other traditional lenders. Accordingly, they decided to raise very high barriers to prevent small businesses from getting any funds from them. They only fund a small business under the Small Business Administration (SBA) program.
Alternative lenders are committed to small businesses
The market always has its own solutions for gaps created by disruptions like the aftermath of the Great Recession of 2008. Accordingly, alternative funding companies began gaining strength by turning the perceived risk of traditional lenders into an advantage. They offered the best funding options to small businesses that lapped it up.
Today, small businesses don’t even bother to ask for loans from traditional lenders. They straightway approach alternative Lending companies for funding because they are confident that these lenders have funding solutions for all kinds of situations. Purchase order financing is one of those solutions designed to help suppliers struggling to handle growing purchase orders from customers.
Businesses can grow only when they are able to properly utilize the opportunities that come their way. In the manufacturing and wholesale distribution business, taking advantage of such opportunities is a lot easier now with purchase order financing. You don’t have to decline a purchase order due to inadequate capacity to supply.