Accounts Receivable and Purchase Order Financing

Looking for alternative business financing solutions but unsure of where to look? Not convinced there are other options worth pursuing? Granted, banks and credit unions have been the more conventional lenders of businesses but there are other options and it’s imperative that companies be well versed in these alternatives. So what are these other options? They are accounts receivable factoring and purchase order financing and both provide companies with the means to take charge of their business financing needs in ways most conventional lending sources can’t. In fact, both have quickly established themselves as the preferred method of business financing for a great number of businesses.

Accounts receivable factoring involves selling the company’s receivables to a financing company. These unpaid customer invoices have a value and the liquidity of these assets can be used to finance a company’s daily operating expenses, improve its cash flow or enact its longstanding plans for growth. Companies essentially sell these receivables to a finance company. The initial payout is typically 80% of the invoice’s value. Once the account debtor pays their invoice, the financing company reimburses the company the difference between the initial upfront payment and what was collected from the account debtor. In terms of purchase order financing, companies are able to use new purchase orders, and contractual agreements, in order to secure the financing they need to purchase raw materials and parts to fulfill the order. Once the order is shipped and invoiced, the financing company then proceeds to collect on that invoice directly from the account debtor. In a sense, both of these financing options can be viewed as outsourcing a company’s receivables collection.

Both of these financing solutions help companies to better manage cash flow and reduce the unnecessary costs associated with financing their customer’s business. Purchase order financing allows companies to pursue all business opportunities, regardless of scope or size. It provides them with the peace of mind they need to concentrate on what they do best. The end result is that companies can benefit from two powerful financing options that can improve their cash position and help them better manage their business.