Purchase order financing is a monetary advance from a creditor. It preserves a business owner's relationship with their customers and affords them the ability to render services that they could not provide with limited funding. A borrower should be aware of the stipulations surrounding the financing approval process and repayment terms.
The Approval Process
Purchase order financing may supply a business owner with a lump sum that can be used to pay suppliers who will fulfill customer orders. A business owner's creditworthiness will be assessed. A new business owner who hasn't had any outstanding debts since becoming a business owner may be more likely to receive approval than an old business owner who has failed to pay back debts or has some unreputable customers.
A purchase order financing application will require that an applicant furnishes a monetary request and information about their suppliers and customers. A creditor will research the information that has been provided and will run a credit check on the applicant. A business owner's profit margin may have a bearing on whether or not they are approved for financing. A profit margin should meet the minimum amount that a creditor provides an applicant with.
The Repayment Process
A purchase order financing agreement may remain active for several months. A financing agreement will include details about the loan principal and interest rate that a borrower will need to repay. There are several parties involved in the payment and repayment process. First, a creditor will provide direct funding to the suppliers who have been listed on an application.
The money that is borrowed can only be appropriated for the reasons that were furnished via an application. Next, each supplier will fill their orders like they normally would. This will involve shipping the orders directly to the borrower or to their customers. If a customer receives their shipments directly from one of the suppliers, they will be directed to remit their payment to the purchase order financing company.
A purchase order finance company may define itself as a short-term lending institution. Interest rates may fluctuate, by starting out at a low percentage and increasing to a higher percentage. Some finance companies may tack on considerable interest charges that could increase the repayment amount. This can occur if a borrower is unable to satisfy their loan principal and interest amount in the timeframe that a creditor has outlined.
For more information about purchase order financing, contact a local lender.