How Purchase Order Financing Can Create Market Entry for Your Startup

You’ve done it; you have started your own business—many obstacles and challenges have already been overcome to reach this point, and more lie ahead. Now, you must break down barriers to create a solid market entry, gain customers, and build an excellent reputation to ensure lasting success for your business.

Startups can have difficulty gaining financing for their business; they have not been in business long enough to establish the kind of credibility and financial history traditional bank loans require. But startups need sales and customers to gain credibility and build that history—so how do they get the financing to make that happen apart from a bank?

Purchase order financing is an option many startups use to cover cash shortages and fulfill customer orders that they would otherwise be unable to afford.

What is purchase order financing?
Purchase order financing is a type of short-term financing that can help your business pay for the inventory needed to fulfill incoming customer orders. Reasons a business may need purchase order financing include:

● Having a large order they cannot afford to fill.
●Not qualifying for other types of financing, such as traditional small business bank loans.
● Facing a seasonal or short-term spike in sales.

In purchase order financing, a business receives an order from a customer, determines the costs, and applies for purchase order financing. If the business is approved, the purchase order financing company will pay the supplier for the order (or a percentage of the order, depending on the agreement), and the business will send an invoice to the customer and the purchase order financing company. The customer will pay the purchase order financing company, who will deduct their fees and then send the business the remainder of the funds.

While established businesses often use purchase order financing, it's an ideal option for startups, since traditional financing is more difficult to qualify for. The purchase order finance company will focus more on the orders received and the company’s ability to fulfill them. Purchase order financing companies also tend to move faster, enabling businesses to fulfill orders and sales quickly.

Barriers faced by startups and how purchase order financing can help
Creating a new business or startup is not for the faint of heart; there are many learning curves and processes to get in motion. Building a reputation and customer base in the market and competing with already-established businesses can be an uphill climb. Having the money to consistently make sales and fulfill orders is also challenging. Startups often fail when they cannot gain traction in making sales, getting new customers, or run out of cash to run their business, but are disqualified from getting bank loans.

With purchase order financing, these barriers are removed or made much smaller. Purchase order financing:

● Requires fewer qualifications to apply than a traditional bank. A startup’s lack of
financial history is not a barrier to qualifying for purchase order financing, as the
purchase order financing company is more interested in the credit and financial stability of the business’ customers.
● Enables even a startup business to operate at a larger capacity. Instead of being
held back from making more sales or fulfilling larger orders, purchase order financing enables businesses to operate at a larger capacity than the cash they have on hand.
● Shoulders part of the load while startups are getting established. Purchase order financing companies handle many of the details of sales transactions. In the whirlwind of a startup, it’s nice to have a partner who can shoulder some of the load.

What to look for in a purchase order financing partner
Businesses want to choose well when picking a purchase order financing partner, after all, their name and way of treating suppliers and customers will become connected to the business’ name and reputation.

When looking for a purchase order financing partner, business owners want to find a company that:

●Is attentive to detail. A purchase order financing company will handle transactions and communication with a business’ suppliers and customers, so look for someone who will do it well and not overlook important details or information that create frustration and poor customer experience.
● Has a high rate of success among customers. Business owners don’t just want
financing; they want to work with a partner who is invested in the success of their
business and will foster trust and good communication. Look for a purchase order
financing company that is well respected and positively reviewed by customers.
● Is efficient. The more quickly and smoothly sales go, the more a business can
complete, and the more customers it can satisfy—an efficient purchase order financing company will help accomplish this.

Successful market entry is vital for your startup, but there are many barriers in the way to making that happen. Purchase order financing can be a tool you use to take you from starting your business to growing your reputation and sales and establishing yourself in the market.

Looking to secure working capital for your startup? We can help. Prairie Business Credit is a national working capital provider to young, growing, or recovering businesses. We offer accounts receivable financing, purchase order financing, and equipment financing. Our company serves both as a trusted financial resource and consultant to entrepreneurs dedicated to building their businesses and ensuring their success.