Maintaining cash flow while covering the costs of doing business can be difficult. Many business models involve paying expenses first then earning money later (e.g. buying inventory to cover an order). However, you can use a few forms of financing to make this easier. Specifically, you may consider purchase order financing and invoice factoring. While these may seem to be the same at first glance, they have some important differences.
PO financing is a special form of financing that provides businesses with the money necessary to purchase goods and supplies for the express purpose of fulfilling purchase orders. In other words, your business is advanced money from the purchase order to cover the costs of fulfilling that order.
This is an option for all sorts of organizations in the supply chain. This includes manufacturers, retailers, distributors and wholesalers. Additionally, PO financing is available to businesses working in imports, exports and domestic production.
Invoice factoring works in a seemingly similar way. In this arrangement, the factoring company buys your invoices from you. Therefore, you are getting the money for a sale without having to collect from the customer. This funding can be used for any business need. You are essentially just selling an asset (the invoice).
This is different from PO financing for a few reasons. First, it happens later in the process. You can get PO financing to get supplies before you have fulfilled the order and issued an invoice. Factoring only happens after you have issued an invoice. Additionally, there are fewer restrictions on the funds. So, it can be more flexible.
How To Choose
Whether you should use PO financing or invoice factoring depends on the unique needs of your business. The former is typically better if you need help with supplying your purchase order needs. It can help to ensure that you always have the funds necessary to take on orders.
Invoice factoring is more helpful when you have cash flow issues due to payment delays. If you offer credit terms to customers, you may want to consider factoring.
Discover more about purchase order financing and invoice factoring today. With the right financing, you can set your business up for lasting success. By ensuring smooth cash flow, you will put yourself in a good position to grow. Both these forms of financing can help you to focus on bringing in sales rather than worrying about money.