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When businesses are considering their finance options, there is a tendency to concentrate on the popular products which may not always be the best solution. What would you consider for your company? Overdraft? Company Credit Card? Loan? Invoice Finance? I would expect that the last of these would be at the bottom of any list, if it was even on it to begin with. Invoice finance is a tried and tested option and, as such, it is surprising that so many businesses overlook it.

It’s difficult to find a time where finance isn’t being talked about in the press, on TV or on the radio. But would you know what invoice finance was if you heard it being talked about in any of these media? If not, you may find the following brief guide to the whats, ifs and buts of invoice finance helps demystify this form of business finance.

Invoice finance, more specifically known as invoice discounting or factoring, is an alternative finance product which often gets its fair share of bad press in the market. This seemingly helpful cash flow product still carries the stigma of being a last chance saloon for a company on the brink of their demise, but is this really a true reflection? No, is the answer.

Invoice finance can often be the product of choice for many companies from small start-up firms to established multi-national companies, although in general it is medium to large companies that gain most benefit. In simple terms, invoice financing allows a business to receive a large percentage, typically 80-85% of the money owed to them within 24 hours of submitting an invoice. The invoice financing company then remits a further percentage of the invoice, typically 10-15%, after the invoice has been settled.

The benefits which this product brings are vast:

Cash Flow
The first and most obvious benefit is access to cash. The flood gates of opportunity can well and truly open with enhanced business cash flow. Many companies use increased financial liquidity to pay suppliers early, buy stock at an attractive price and bridge the gap between completed work and the date of their invoice payment.

Credit Insight
All companies providing their clients with invoice finance also give access to invaluable information about the clients’ customers, allowing them to make informed decisions about levels of trade and credit.

Bad Debt Protection
Many invoice financiers offer bad debt protection, which offers the client financial protection against any of their customers going bust.

Credit Control
This benefit comes only when you operate a factoring facility which gives you the opportunity to allow your factor to carry out collections on your behalf. This frees up much needed time and would usually be at as little as half the cost of employing a credit controller.

The next time you are thinking about your business’ financial position, it’s as well to consider all the options rather than just plumping for the most obvious solution. Why not explore all of the options including invoice finance? Even take it a step further and think outside the box by considering new and innovative alternative finance options such as crowd funding, peer to peer lending or even timesheet finance.

Knowing the ends and outs of purchase order financing is an asset to almost any small or medium sized business owner. In the sections below you will learn just exactly what purchase order financing is, the benefits, drawbacks, who can benefit the most from it, and would be likely to qualify for it.

What is purchase order financing?

Purchase order financing is another way to get a loan for the capital you need to finance the supplies, production, and shipping of a product after you have received a purchase order from a buyer. Once you produce the finished goods and are paid, you can then pay off your invoice to the company who provided you with funding.

This is a perfect solution for small start-up businesses who have orders coming in but don’t have the finances required to order supplies, pay their workers, and ship the finished goods. This would also be a great opportunity for a small to medium sized businesses who have found themselves with a sudden large customer jump or are graced with a very large order.

Who can benefit from purchase order financing?

- Purchase order financing is great for small to medium sized businesses who usually do not have the funds for large orders that could sky rocket their sales and turn their product into a household name. Image pitching your product to a major retailer, receiving an order from them, and then not being able to produce the goods needed because you are short on funds. purchase order financing could save you from this heart-breaking, and business-breaking, blow.

- A company who has received an order so large that they would need a six-digit loan. A purchase order financing company is not there to finance every single order so that a business does not have to spend any money up-front, it is merely a means for businesses to get the funds they need for an order that would otherwise be out of their reach financially.

- Only those who are reselling an already made product that they have to purchase in order to send to the buyer, such as drop shippers, or are
producing a product to sell may be eligible to receive purchase order financing.
For example, if you are selling a service, you would not qualify to receive purchase order financing. Although it may take capital you do not have to hire employees to perform the service, it would still not qualify under most company
guidelines.

What are the drawbacks of purchase order financing?

There are few drawbacks to receiving purchase order financing, however, there is one major qualification that could potentially stand in your way. When a company grants you funding, they assume they will be paid after your
customer receives the finished product and pays you. Because of this, many funding companies will check the credit of your buyer(s) to be sure that you will not get ripped off and be left without the money to pay your invoice. Purchase order financing companies are not only taking a chance on you, they are taking a chance on your customers as well. They are the ones with the real risk if the deal goes sour. Knowing that your customer is credit worthy gives the company the peace of mind to lend to you.

What to look for in a purchase order financing company

You should find a company that is right for you. These guidelines may help you better understand what type of company you should apply with:

- Find out what their minimum and maximum funding guidelines are to ensure that they meet your financial need. If a company only funds loans that are in excess of what you are looking for or has restrictions that are less than what you need then you are best moving on to another company.

- Find out what other eligibility requirements they have to
ensure that you do qualify under their guidelines before you waste any time applying for their loan.

- Find out what length of time you have to repay the loan and
check to see if it meets with you production and billing schedules to ensure that you will have the funds in time.

- Once you have found a company that works for you, make sure
that they have a fee or interest rate that your company can both afford and be comfortable with.

In the world of loans and financing, purchase order financing may be a small business’s best ally. They will usually have repayment terms that allow time for production of a product and it is the fastest way to receive financing without losing any investment in your business. Also, since they will check into the credit worthiness of your buyers, they may save you from producing a product for a deadbeat buyer. All in all, purchase order financing is a way to finance a large order that may get your product into the hands of a top notch retailer.