How Purchase Order Financing Can Help Startups Grow

Starting a new business comes with many moments of strain, but none are more worrisome than limited cash flow. To grow your startup, you need positive cash flow that supports new inventory purchases and employee hiring, especially as your company takes on bigger and bolder projects. Yet, having access to that capital as an unproven business is tough.

That is where purchase order (PO) financing can offer a solution. With purchase order financing, you gain access to funding that is simple and accessible, with fast and flexible financial support when you need it the most. Could this be what you are looking for to grow your company? Take into consideration what PO financing is, how it works, and why it could support your business’s future.

What Is Purchase Order Financing – And How Does It Work?

Purchase order financing helps a business buy the inventory it needs to meet customer needs, even if its cash flow is not where it needs to be. The purchase order financing company pays your supplier to manufacture and deliver the goods to the customer on your behalf, keeping your business moving forward. When the customer pays, we apply a fee and send the rest to you. 

When you use PO financing for a small business, you can accept more than one customer order and work on building your business, even if your cash flow may not allow you to buy all of that product up front. It ensures your business is able to run smoothly so that you maintain a good reputation and don't lose customers.

It differs from traditional financing and equity financing in several ways:
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• With PO financing, you maintain ownership of your business.
• Typically, loans require ongoing payments and ever-increasing interest costs. With PO financing, you know the costs upfront and when the payment occurs. ​
• PO financing isn’t a loan itself but a way to meet your customer’s needs. Payment for the borrowed funds comes directly from your sales. 

How PO Financing Works: A Step-by-Step Guide
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1. Once your customer makes a purchase, you receive their order. After analyzing the type and volume of products, you determine if you need financing to meet the order’s needs. 
2. Your supplier determines costs. You get a quote for the cost of the goods your customer needs in the form of a pro-forma invoice. You use that to apply for purchase order financing. 
3. Your lender approves you for up to 100% of the supplier cost. With approval, the lender sends the payment to the supplier.
4. After delivery, an invoice is sent to your customer.
5. The customer pays the purchase order financing company what they agreed to pay you for, which will include the costs of the supplied goods and your upcharge. The financing company sends what is owed to you.

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How PO Financing Helps Startups Grow

Cash flow solutions for startups can be hard to obtain. There are several key benefits to using purchase order financing for the growth capital you need:
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• Take on the big order. With PO financing, you can take on those big orders you would otherwise have to pass on. You don’t need upfront capital to do so.
• Avoid taking on debt or selling your business. There is no long-term loan here, and you are not losing equity in your business.
• Build supplier and customer relationships. Being able to meet these needs builds relationships over time. 
• Get orders fulfilled faster. That drives customer retention and improves revenue.
• Flexibility. Compared to traditional, hard-to-get loans, this type of startup financing is flexible and customizable.

Is PO Financing Right for Your Business?

You may not need this if you have available cash flow and no limitations on purchases. However, it could be a good fit for product-based startups with:
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• Limited capital but with a strong sales potential 
• Reliable customers and large pending orders
• Businesses that are ready to take on bigger orders to scale

Ready to Learn More About Cash Flow Solutions for Startups?

PO financing enables a startup to meet short-term cash flow needs to satisfy customers. It eliminates the risk and cost of long-term debt and puts money in your hands when you need it most. It’s a bridge, not a permanent solution, but it is a game changer for most of today’s companies. 

Prairie Business Credit offers flexible, fast purchase order financing tailored to your needs. Contact us today to learn more about PO financing. 

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