There are many different ways to finance a business depending on the situation that a company is in. Invoice Financing, PO Financing, Term Loans, Lines of Credit, upfront subscription monetization etc can all be very helpful to get your business growing and to manage your cashflow.
If you have a large order that you need to fill but do not have the capital to do so, chances are high that you are in the market for financing in the form of either credit versus the PO or just a straight term loan. This article lays out some great reasons why PO Financing makes more sense.
The basics of PO Financing; when you receive an order from another company, this represents future revenue for you. A lender is willing to advance you a percentage of that value (typically 50%) so that you can pay your vendors for the items or the parts to manufacture and fill the order. This allows you to become a reliable vendor that can fill orders quickly for your customers without having to wait on other payments to fill the order down the line.
A term loan can be helpful for a growing company but you are typically locked in to a longer amortization period with either larger monthly Principal and Interest payments (P&I) or monthly Interest payments with a balloon payment at the end of the term. In both cases you will need to plan ahead for probably a year or so to make sure that you will have the cash flow to make those payments as they come due or be willing to pay a penalty for an early payoff. If growth plans or other projects fall through this can be a heavy burden.
PO Financing has a set term and a set revenue stream where payments from a specific project are earmarked and there is no long-term obligation. PO financing can be done again and again as you receive more orders with the same set up and benefits. Term loans can be refinanced but again, you may face early payment fees or origination fees that make the cost of the arrangement eat away at a large portion of your margins. Many companies offset the cost of PO financing at least partially by baking in the cost of the funding. This is much easier to do from order to order than across multiple customers and contracts. PO Financing is a more flexible and cost effective way to get the capital you need to finance your business.
Payplant provides growth financing for entrepreneurs, by entrepreneurs. Its Pay Me NowTM digital invoice-financing service provides cash to businesses when their customers pay too slowly. Payplant helps businesses with PO and Invoice Financing, Asset Based Lending, Term Loans and Customer Financing products. Payplant works with companies that don’t currently qualify for traditional bank financing, have grown too quickly for their current lender or are at the point in their evolution where an influx of working capital can elevate their business to achieve rapid growth. Payplant delivers fast and reliable funding, at very attractive rates and is completely on demand. For more information, visit www.payplant.com.