What is the Difference Between Purchase Order Financing and Factoring?
One of the most important factors to running a successful business is cash flow. Without ample funds, it may be difficult for you to cover important expenses and stay in a profitable position. Unfortunately, many business owners feel like they are limited when it comes to their financing options. Though it may appear like you only have so many choices, there are exciting options like purchase order financing you might want to think about.
Take a look at the details surrounding these financing options. With a bit of research, you may discover the most sensible financing plan for the future of your business.
Rethinking the Bank Loan
The most commonplace method of obtaining funds for a small business is by going to a lending institution like a credit union, insurance agency, or bank. While this can be a straightforward way to get a loan, you might also feel like you want to avoid high interest rates and other fees. Don’t assume this is your only option.
Finance to Suppliers
Purchase order financing is a method of obtaining funds that might appeal to your needs. This type of financing involves having a third party pay your suppliers for orders your customers place that you cannot fulfill. Usually, this happens when you do not have the available funds to prepay your supplier for future orders. Through financing your purchase order, you can cover all your financial obligations without having to delay orders because you lack funds.
This method of financing can be advantageous for a number of reasons. The obvious benefit is that you don’t have to delay orders because you don’t have the means to pay suppliers. Beyond this, you don’t have to worry about your credit history impacting your options. Bank loans are determined by your own credit history, but lenders who provide purchase order financing focus more on the credit of your customers and your suppliers.
Factoring
Another option worth consideration is factoring. Also known as accounts receivable financing, this option is beneficial for businesses who are waiting on accounts receivables to be paid. A third party will buy unpaid invoices, give you the cash up front, and take on the task of collecting the debt for you. This helps cover specific expenses without putting you further into debt along the way.
Whether you opt for accounts receivable financing, purchase order financing, or a traditional bank loan, it can be a good idea to research all of your options. The more time you put into learning all of your financing choices, the easier it will be to make the most sound decision for your company’s future. For any financial or lending questions, feel free to contact us today.
