How can I fulfill my large orders when cash flow is tight?
The dilemma for many manufacturers is the lack of available cash flow to buy raw materials in order to complete large orders. It is also an issue for distributors or wholesalers lacking funds to pay manufacturers to produce goods.
Lack of available funds can mean losing valuable business you know you are capable of completing. It could also seriously jeopardize future orders with existing customers. Purchase order funding and invoice factoring can both be alternative financing options worth considering.
So what is the difference?
Purchase order financing is an excellent option for companies who have not yet established a regular and sustainable cash reserve, or who may be experiencing a seasonal rush. New purchase orders and contractual agreements are enough to secure sufficient financing to purchase raw materials and parts to fulfill the order. Once the order is shipped and invoiced, the financing company will collect on the invoice directly from your customer. Unlike invoice factoring, where orders must have been received and invoiced before factors provide finance. Accounts receivable financing is essentially being used in both invoice financing and purchase order financing with variations on when the cash is available for use. Both purchase order financing and invoice factoring are great options for managing cash flow.
For both types of financing, your customers must meet the criteria set by the funding company of your choice. There will be other parameters set by the PO financing or invoice factoring companies. If you factor your invoices, you can still use PO funding, your factor will be able to explain the details to you, and how the process works.
These financing options offer slightly different ways to enable your company to:
- Purchase goods and meet deadlines without having to maintain inventory
- Navigate the supply chain process from pre-production to delivery.
- Complete orders in a quick, cost effective fashion
- Grow sales without interruption
- Meet seasonal spikes in business
Holding excess inventory that does not turn quickly enough is a huge cash drain. It may have to be sold at a discount, which will obviously reduce margins. The benefit of not holding inventory means less warehouse space is needed. Running a leaner more efficient organization can help to boost sales and maintain strong customer relationships.