Keeping the consistency of the cash flow alive, whether you’re part of a small business or a mid-sized one, is never easy. You have to manage and maximize the flow wherever you can, which can often lead to a dead-end where a person may get stuck where they least expected it. This is because running a business isn’t as easy as one thinks. While some people might enjoy the sight of their products or their services being demanded more and more, leading to an increase in the revenue and profits. Other people might need to take a different approach to get the same result. This approach comes in the form of freeing up more capital, which allows the owner to get new staff members and new equipment.
As the famous saying goes, “It’s wise to make hay while the sun shines”, finding your business in a position where it can bask in all of its glory is the dream for every business owner. Despite this dream being a good one, it’s imperative that you know your place and where your business stands before making rash decisions and spending all you have on covering advertising and marketing costs, before even setting up a solid financial plan that helps you out in the long term. To help with this plan, several business owners no matter how small or big their business might be, search through the several possibilities of business loans that they might be eligible for.
Oftentimes, these same people mess up when they take a glance at an option that at first might seem like the same thing but can be taken into two different explanations, which is exactly what comes back to bite them in the end. These loan options are known as a “purchase order loan” and “purchase order financing”. While yes, both of these options sound too similar to be different, they really are. It’s important to know what they both offer before making a rash decision and getting stuck in a contract whose terms you don’t agree with in the foreseeable future. Truth be told, they’re not even close.
Purchase Order Financing
A business loan where the business owner is allowed to legally make a sale of a purchase order to a lender in exchange for cash, but instead of getting a normal invoice as that is how the process usually works, the customer will pay the price of the goods to the lender, instead of you. Who then will keep a big portion of the amount to cover the loan while sending you the residual funds. This business loan is known as purchase order financing.
In some cases where the customer will pay on terms, the lender might just buy the debt from you at a discount and keep the full amount received.
Purchase Order Loans
Purchase order loans on the other hand work in a different way. Instead of having to pay the loan in full when an invoice is received, you can pay back a fixed amount every day, even on off days where you don’t make a sale. This is why many businesses prefer to go with purchase order financing, as it is more accessible and easier to understand.