Purchase Order Finance - Your Tool For Unlimited Sales
Purchase order finance is a sales technique that was born out of necessity and has grown in importance for both companies and their employees. The current state of finance no longer allows for companies to pay their staff with paper checks, which has created a need for other payment methods. Purchase order finance is one such method that can be implemented by any small or large company.
Purchase Order Finance provides the ability to assign funds for an approved purchase or receive an invoice from a vendor without the need for generating cash up front. As inventory levels grow and increases, as long as there is enough money in place within your company's balance sheet, you are able to cover the cost with this technique.
This system is essentially a line of credit, in the form of a purchase order, to those who are on the purchasing staff. This avoids the need for sending separate checks to each supplier or account and can be used for items that would typically require orders to be placed through your finance department. An item can be purchased by a person on an employee's purchasing approval but without needing to draw up and send out several checks.
The system allows you and your employees to manage all payments effectively under one roof; you have complete control over payment terms and amounts, which includes whether or not payment is due at all after order completion or if they are made up front.
Purchase order financing allows businesses to purchase material and supplies needed for the day-to-day business operations with your own money from your balance sheet which is a great benefit that not many companies have readily available.
The purchase order finance is provided by a bank or other financial institution and can be set up for a one time need or an established revolving account that you can draw from monthly. It is beneficial because no cash needs to be paid up front, nor does it need to be reported. The system then begins to report using the customer's payment schedule to cover the invoice; this reports as revenue at the time of completion of sale, when received on their current statement.
The process is not difficult to setup, though it can become complicated if you have a large volume of suppliers. The first step is to set up a separate account that can be used solely for purchase orders, this is done by creating a purchase order finance account and linking it to the customer's current line of credit. This account should have any desired information on it such as customer name and address, payment terms and the amount of money you need placed on deposit.
The next step is to establish or update an existing customer list in your system with the same information needed for the new purchase order finance account. Next set up accounts already established into the purchase order form used by your company and link them as new customers.
The last step is the most important part, which is to set the payment terms. This can be done by setting up a schedule that will be used and follow it accordingly. Choose the desired payment deadline and fill out the required information, as well as choose whether or not there will be any interest rates applicable to this account. Note: we suggest you check with your bank before choosing a default penalty rate or interest rate for late payments that could affect your credit score.
Purchase Order Finance should help in generating more sales for your business by allowing for better financing options to be offered to your customers and employees, but it can also become an issue if not handled properly from both ends of the company. Your company should be aware of the funds available on your current business accounts that can be used as a purchase order credit. Also make sure to establish a system where employees do not have access to this information until they are approved by the business owner to use them.
Purchase Order Finance provides options for financing certain purchases, which can benefit small businesses in a variety of ways:
For example, if you own a car for your employees to use for transportation purposes, purchase order finance can help you fund their payments without having to take out a second loan from the company itself. Or, if you own a small business that makes product sales to other companies, you can use purchase order finance to "sell" your products in advance and then have the customer pay for the product upon receipt.
You can set up purchase order financing accounts yourself or use a company like Flexi-Invoice that helps customers create purchase orders and links them to bank products such as lines of credit or credit cards. Chargebacks are also provided through this system, which allows you to get back any money lost over fraudulent purchases. This is one of the greatest benefits of using chargebacks; if an invoice for payment is never paid by the buyer, you can take it back from the company's purchase order account without having to get involved in legal issues.
If you are currently working with a financial institution, purchase order financing is the best way to get them to prepare for what you expect out of the agreement. It is important that you keep banks informed and follow up with your expectations in advance so they can be more prepared. This will allow you to work together and help meet your business needs.
Purchase order financing provides a way for businesses to acquire cash when they need it most if they don’t have access to it otherwise, as well as provides a credit line to their employees through which they can make purchases without having to go through their personal money or accounts first. It helps businesses set up limits for when companies can use the line and how much money can be accessed through it.
Purchase order financing is the fastest and easiest way to store funding for when you need it. Airline companies use purchase order finance to help fill the gaps in their airlines if they are missing a large amount of cash on hand at any given time. The Federal Reserve, who controls banks as well as other financial institutions, uses this system to provide funding to banks that are in need of it but have no other way of accessing funds.
Purchase order financing provides an easier way for businesses to pay their suppliers efficiently, as well as gives them the ability to have an interest free loan that they can use to get the supplies they need. A company can also use purchase order finance to upgrade their manufacturing plant or improve on equipment so they can focus on producing more goods and services. This process also allows a company to get in touch with a bank early on in the business so that they are aware of what is going on with your company and how it is doing financially.
There are two different types of purchase orders available for businesses, depending on their credit needs.
Conclusion
For more information on purchase order finance, search the internet or contact your bank to see if there are any special programs or resources available.
The article should also be followed up with an article on business credit reports and scores as it is one way a small business can get a boost in their ability to obtain funding or acquire products from suppliers.
Purchasing Power is an important component of the economy. The United States government defines this concept as "a strong and healthy economy that translates high levels of consumer spending into a growing and stable supply of goods and services." Purchasing Power allows people to buy things that are needed for their homes, businesses, schools, churches, and families.