Yubi – Purchase Order Financing
Our SCF platform helps you meet with your Purchase Order Financing needs!
What is Purchase Order Finance?
The term purchase order finance refers to a type of short-term commercial funding option that provides capital to business owners to pay their suppliers upfront for confirmed purchase orders. Businesses usually intend to avoid turning down an order due to cash flow challenges, and purchase order financing allows them to overcome the issue of accepting huge orders. Further, since there is no long-term binder, businesses can stop using it at any time in case there is a drop in order volume.
Purchase order financing is designed for growing small businesses and startups with limited access to working capital required to fulfill large orders. The types of businesses that qualify for purchase order financing include manufacturer, distributor, wholesaler, reseller, importer, exporter, etc.
Benefits of Purchase Order Financing with Yubi
Purchase order finance is an excellent solution for small businesses struggling to rise above the cash flow problems to fulfill an order. However, to understand its full usefulness, let us look at some of its major benefits.
✓ Purchase order finance is a good option for businesses that are finding it difficult to secure approval for a loan against a purchase order in India within a reasonable time. It is easier to qualify for purchase order loans where the purchase order itself acts as the collateral for the loan.
✓ Typically, startups tend to be in rapid growth mode, but their lack of track record makes it challenging to secure funds to realize the growth. So, purchase order finance is great for startups as it helps them achieve growth while shoring up cash flow.
✓ Business loans usually require the promoters to sign a personal guarantee, which means failure to repay leads to the seizure of personal assets. In the case of purchase order finance, some lenders don’t require any personal guarantee, which means the lenders absorb the risk if the borrower is unable to pay it back.
✓ Unlike regular business loans, purchase order loans are flexible. If the cash flow drops, funds can be raised using the outstanding purchase orders. On the other hand, businesses can stop using it if there is a drop in order volume.
How Does Purchase Order Finance work?
Purchase order finance is a great way to fund cash-strapped small businesses and startups that are on track for huge growth in the future. The following pointers highlight how purchase order finance works:
✓ The intended buyer places an order by issuing a purchase order.
✓ Once the order is confirmed, the seller prepares the cost estimate.
✓ The seller decides to apply for purchase order financing to meet the working capital gap.
✓ The purchase order financing lender extends funds to the seller.
✓ Once the payment is received, the seller delivers the product to the customer.
✓ The seller issues the invoice after shipping the product.
✓ The buyer pays the invoiced amount to the lender on the agreed date.
✓ The lender, in turn, pays the seller after deducting its financing fee.
Why is Purchase Order Finance for You?
Purchase order financing can help you fulfill multiple orders so that your business’s growth is not constrained due to growing funding requirements. The process is straightforward – the purchase order financing lender provides you the fund through a letter of credit or cash, you deliver the order to the customer, and you receive the proceeds after paying the financing fee to the lender.
By now, we have seen that purchase order financing is an excellent option for growing small businesses and startups. However, the option can become smoother and easier with the help of an experienced supply chain finance platform like Yubi. Under YubiFlow, an end-to-end trade and supply chain platform, vendor finance, dealer finance, and anchor financing products cater to purchase order financing requirements.
How does purchase order financing work?
Let us assume that a company lands a significant order from a prospective buyer. However, the company doesn’t have enough funds to pay the supplier upfront. So, the company leverages the purchase order to access liquidity and secure funding from a lender.
What is the difference between a purchase order and an invoice?
A customer generates a purchase order at the time of placing an order. On the other hand, a seller generates an invoice after completing an order. In short, a purchase order denotes a sales contract, whereas an invoice is the confirmation of a sale.
Is it mandatory to provide a purchase order?
A purchase order is a commercial document that serves as an official offer issued by an intended buyer to a seller. It is recommended that vendors refrain from delivering or shipping products before the issuance of the purchase order.