About Purchase Order Financing
The gap in time between receiving a purchase order and receiving payment for the goods described is a problem for many retailers. In order to fill the purchase order, a business needs to procure enough inventory. This process is costly, however, and must be completed before they receive revenue from sales. A cash flow crunch is an all too common result of this dilemma, and may even result in failure to fill a purchase order. Purchase order financing can help.
Before signing a contract for financing, you’ll want to reevaluate your budget, business goals, and funding needs. You’ll need to consider the manufacturing, shipping, and storage costs when planning your budget, and try to minimize costs as much as possible.
It’s a good idea to shop around for the right manufacturer or supplier, so you can get the best deal on goods. When financing a purchase order, the lender will take a percentage of your profits, so minimizing the expenses is a smart move. However, in the end, financing will provide you the chance to grow at your own speed, without worrying about the size of your clients’ orders.
Purchase Order Financing Opportunities
After researching the different banks, lenders, and other funding solutions, you may be overwhelmed with your choices. There are a lot of variables to consider when committing to a certain type of loan or funding company. Be sure to ask yourself if they meet your needs and if the repayment options are realistic for your current budget. Clarify your priorities so you can more easily narrow down your options. With that in mind, let’s explore the best funding options for purchase orders.
Purchase order financing
Purchase order financing is funding specifically to cover your purchase orders. If you need capital fast in order to fill your purchase orders before you receive payment from your customer, this can be a good option. A purchase order financing company will give you a lump sum of capital to fund the purchase order. Then, once the order has been fulfilled, they will collect payment from your client directly. Your chances of approval will be based on your client’s credit history, not your own, as they are the ones who must repay the funding.
Of course, the funding company will charge you for this service, and could even sneak fees into the contract, so be careful who you work with. They will contact your client to collect payment, so if they don’t interact professionally, it could make your business look bad. You may also be in danger if your customer fails to repay the funding. Overall, be sure to read your contract carefully and be picky about your financing partner.
Pros
- Gives you ability to fill purchase orders
- Quick access to funding
- Relatively lenient eligibility requirements
Cons
- High cost of capital compared to other funding options
- Can only be used to cover costs associated with the purchase order
- Tends to have a high loan minimum
Bank loan
A bank loan is when a bank gives you a large lump sum that you repay over a set period of time, depending on the contract. The loan usually comes with a relatively high borrowing limit, which is great for those who need to make large purchases or expand their operations. Banks typically ask that you have at least three years of trading history before applying, as they have strict requirements. However, if you do obtain the funding, you’ll enjoy lower interest rates in comparison to other loan types.
When applying for a bank loan, be sure to ask yourself these questions before going through the long process. Can you afford the large monthly payments? Can they provide you the necessary funding? Is the standard interest rate affordable? Don’t be afraid to shop around, as each financial institute has different guidelines. You might be surprised to find that private lenders can offer you more flexibility in your payment schedule and funding options.
Pros
- High borrowing limit
- Lower interest rates
- Interest rates are tax deductible
Cons
- Strict eligibility requirements
- Long application process
- Collateral and credit check may be required
Revolving line of credit
A revolving line of credit is great for those who want easy access to funds when they need it. Similar to a credit card, you get access to more funds as you pay off the loan. It’s the type of funding that’s great for emergencies or fulfilling last-minute orders. Your borrowing limit will be determined by your business history, though a credit score isn’t always a factor in the approval process.
So long as you have the funding to cover the high interest and fixed monthly payments, then this is a good option to consider. You have complete control over the spending, as the lender doesn’t dictate a schedule. However, if you’re planning on making large purchases, this type of loan might not be the best choice since it usually has a low borrowing limit.
Pros
- Easy access
- Only pay interest on the funds you use
- Freedom of use
Cons
- Higher interest rates
- Low borrowing limits
- Extra fees
Inventory financing
Consistent inventory is the key to a successful eCommerce retail business. If you have purchase orders to fill, financing your inventory can help. Inventory financing is funding specifically for inventory. The inventory you purchase with the financing will act as the collateral to secure the loan, so you don’t have to worry about risking your other business assets. This type of funding can help you fulfill large orders and prepare for those inevitable spikes.
Young businesses and those that fulfill large orders benefit the most from this type of loan. Keep in mind that some lenders have a loan minimum that may be too high for you to afford. You may not receive the full funding amount you need, either, meaning you might have to pay the difference if you agree to the loan.
Pros
- Quick and easy process
- Inventory is the only collateral
- Credit scores aren’t always a factor
Cons
- Regular lender evaluations
- Can only be used to fund inventory
- Loan minimums can keep you from affording this loan type
Business grant
A grant is given to you by private organizations, the state, or the federal government. You don’t have to repay grants, but they will dictate what you spend your money on and when you do. They also have very strict guidelines and a lengthy application process. Not everyone can qualify, so do your research before spending a lot of time applying.
The greatest benefit of funding your business with a grant is that you don’t need to repay the money. So, if you do qualify for one, it’ll be a great way to boost your business operations. However, it’s not a long-term solution, as every business needs consistent cash flow to grow. It’s a good option if you have the time and energy to strive for it, but they are competitive and you may not find one that is relevant to your business.
Pros
- No repayment needed
- Access to large sums of money
- It adds credibility and visibility to your business
Cons
- Lengthy application
- Competitive and difficult to obtain
- Short-term solution only
Revenue-based financing
Revenue-based financing is a funding option for businesses that bring in consistent revenue. This type of funding involves obtaining funds from a funding company and repaying them with a percentage of your future sales. The repayment sum varies month to month as it’s dependent on your sales. This is a great solution for businesses with variable sales revenue or even seasonality, as they won’t need to stick to a high monthly payment. Revenue-based financing is equity-free, too, so you won’t have to dilute your ownership.
Consider your options carefully, as revenue-based financing can be quite costly. You may end up paying the investor more than you would have paid in interest on a traditional loan. However, credit checks and a long business history aren’t usually required to receive this type of financing, making it a viable solution for younger businesses.
Pros
- Equity-free, no credit checks required
- Fast access to cash
- Repayments are based on your sales revenue
Cons
- Requires steady revenue
- Repayments may cost more than interest on a regular loan
- Not a practical option for all business types
Merchant cash advance
Businesses in need of quick cash can turn to a merchant cash advance to get them through the tough times. It’s easier to obtain than other loan types, as lenders don’t usually consider your credit score or business history. You’ll repay the loan with a percentage of your future debit and credit card sales, eliminating the stress involved with a fixed monthly payment.
Keep in mind that this type of financing doesn’t help you build credit history, which means that you’ll have to take other steps to improve your score. The lenient requirements also come with a higher cost of capital, so make sure you can afford the extra expense every month.
Pros
- Quick access to cash
- Repayment based on credit and debit card sales
- Lenient eligibility requirements
Cons
- Higher cost of capital
- Doesn’t help you build credit history
- Money can be removed from your account, regardless of sales volume
8fig: An Alternative to Purchase Order Financing
Purchase order financing can be difficult to obtain, especially for new businesses that can’t afford to fund a large purchase order. Banks and lenders have strict requirements, regarding the companies that approach them. 8fig is another funding solution that may be a better fit for eCommerce businesses than traditional types of financing. We offer a full eCommerce growth and funding solution that provides businesses with the capital and resources they need to reach their full selling potential.
Why use 8fig instead of purchase order financing
8fig will fund up to 90% of your supply chain costs with flexible terms that ensure you have the cash flow needed to succeed. You’ll be able to fund large orders and build client relations without worry. Consistent cash flow is the key to a growing business, and that’s what 8fig offers. With continuous and flexible funding that is aligned to the flow of cash across your supply chain, you’ll never have to worry about going out of stock.
How 8fig works
1. Apply
The application process is fast and easy. Answer some questions about your business and sales, and then provide basic information about your supply chain stages and expenses.
2. Connect your store and bank account
In order to provide you with an optimized Growth Plan, 8fig requires that you connect your store and bank account to the 8fig platform.
3. Get funded
With 8fig, you can get funded in just days. Since 8fig funding is continuous, you receive capital infusions into your business right when you need it.
4. Make adjustments
If something changes and you need to adjust your payments, remittance schedules, or even funding amount, you can always do so thanks to 8fig’s flexibility.
5. Grow your business
All that’s left to do is sell, sell, sell. With 8fig, businesses are able to scale 2.5x as fast.
What 8fig offers in addition to financing
Funding is only part of what 8fig offers growing businesses. 8fig’s funding is designed to optimize your cash flow, giving you the means to manage your capital. We also provide you with the tools you need to succeed, such as those that improve your operations and predict sales. ECommerce sellers can manage their operations all on one platform, which is always a great perk for busy business owners.
Although 8fig does not take equity in your business, we still see you as a business partner, working with you to achieve long-term growth. Instead of one lump sum of capital, we provide you with continuous cash injections when you need it to cover your supply chain expenses. We’ll be with you the whole way through, helping you map your supply chain, analyze your sales, and manage your schedule.
Who is eligible for 8fig financing
8fig’s application process is quick and simple. You can get approved and receive funds within days, rather than weeks or months like with other financing companies. 8fig looks for businesses that sell a product online, have been in business for at least 12 months, have an annual revenue of $100,000 or more, and have made an average of $8,000 in sales per month for the last three months. If this sounds like you, you’re most likely eligible for funding from 8fig.
How to apply for 8fig financing
It’s easy to apply for 8fig financing, and it only takes a few minutes. Simply answer the questions and follow the prompts and you’ll get funded in no time!