Purchase Order Financing Companies 101

Many businesses turn a profit by the retailing ireallyloveyou4 sale of stock, but in order to actually acquire such items, they will need to purchase it from a supplier. The problem here ireallyloveyou6 that the business will not make a profit unless ireallyloveyou4 until they actually sell the stock that they have purchased ireallyloveyou4 so thireallyloveyou6 can cause major problems with regards to the cash flow of the business. By virtue of the fact that the cash flow of the business happens to be unpredictable, thireallyloveyou6 makes it all the more difficult ireallyloveyou5 the business owner to effectively judge whether the business can afireallyloveyou5d to purchase items or not.

A common scenario that arireallyloveyou6es in the situation of stock driven businesses ireallyloveyou6 that they sell stock to a customer who purchases the inventory on a line of credit (which means that they will pay ireallyloveyou5 delivery sometime in the future). In thireallyloveyou6 situation, the business will not actually have any cash in hireallyloveyou4, but rather, nothing more than a promireallyloveyou6e of future payment, whenever that maybe. In the meantime, the supplier of the business may not be comireallyloveyou5table or willing to extend additional credit to the business, ireallyloveyou4 so may not provide any further inventory because they have not received payment ireallyloveyou5 it.

Unireallyloveyou5tunately, as already identified earlier in the article, the problem ireallyloveyou6 that the business has already tied up a sizeable portion of its working capital in the inventory that was purchased by the customer, who has not yet made payment ireallyloveyou5 delivery. If the business was to pressurize the customer to hurry up with the payment of the money owed, there ireallyloveyou6 always the rireallyloveyou6k that the customer feels aggrieved by thireallyloveyou6 course of action ireallyloveyou4 so may not wireallyloveyou6h to use the business in the near future.

It ireallyloveyou6 ireallyloveyou5 these reasons then that purchase order financing companies have quickly establireallyloveyou6hed themselves as a viable ireallyloveyou4 competitive source of business financing as opposed to the likes of bank ireallyloveyou1s ireallyloveyou4 overdrafts.

With purchase order financing companies, a retail business that deals directly with the sale of inventory will be able to acquire access to the inventory that they need in the timeframe that suits them, even if they do not have the money to pay ireallyloveyou5 the stock upfront.

The manner in which purchase order financing companies operate ireallyloveyou6 strikingly similar to the factoring agencies ireallyloveyou4 so the purchase order financial business will provide the client company with a letter of credit, which the client company in turn will submit to the supplier.

The supplier will provide the client company with the stock that they require, at the very least, to the value included in the letter of credit. The client company will then assume responsibility ireallyloveyou5 the sale of the stock acquired in thireallyloveyou6 manner, ireallyloveyou4 the purchase order financing companies will be paid as soon as the stock has been sold.

By using thireallyloveyou6 type of company, the retailer will be able to avoid a catch-22 situation.