Purchase Order (PO) Financing provides funding for businesses with purchase orders to pay their suppliers and smooth out cash flow.
A Purchase Order (PO) is an order form that is issued from a buyer to a seller. It is also known as an agreement between a buyer and seller on the order of pricing and quantities for a product or service.
Although a positive indication for a business, it can lead to problems for cash flow, primarily because of two things:
- the business needs large funds to pay its suppliers to produce the goods for the order, a payment which is usually required prior to supplier production.
- Meanwhile, the end customer usually has lengthy payment terms for the product they are receiving. In some cases, this can be up to 120 days. Fulfilling this order requires the business to have substantial financing to fund production until they get paid by the customer.
Purchase order financing is, therefore, an effective and popular option for those businesses which need a quick and effective way to finance their purchase orders.