One huge challenge that you may be facing as a business owner is dealing with purchase orders. If you cannot afford to pay a supplier that demands prepayment up front, you may be out of luck getting the products that you need to fulfill orders. That is why it can help to use purchase order financing in this difficult financial situation. Here is how it will work if you decide to use this form of financing.

The Initial Order Is Placed  

You should start the process by placing an order with a supplier just as you normally would. It is common for a supplier to not want to deliver goods to you until they receive payment for the product though. Sometimes suppliers will not even accept a credit card for the payment, meaning that you must have the cash on hand by writing a check. If you don't have the funds, you'll need to work with a purchase order financing company.

The Purchase Order Financing Company Pays The Bill

You will reach out to the purchase order financing company that you have decided to work with. You can then reach an agreement on how much of the order you need help paying for. Some businesses need assistance with paying for 100% of the order cost, while others can supply a percentage of the cash themselves. You would make the payment to the purchase order finance company, and then they would make the full payment to your supplier. 

The Products Are Shipped 

Once the payment is received, the supplier will release the product and ship it to you or directly to your customer. Whoever received the shipment will need to verify that they received the correct items so that the supplier's end of the transaction is complete.

The Purchase Order Financing Is Repaid

There are two main ways that the purchase order financing can be repaid. If you are the company that received the product, you can make a direct payment to the financing company once you have made a big enough profit from reselling the items to your customers. The faster that you make the payment will result in less interest paid on the loan.

However, if an item is being shipped directly to a customer, there is also the option of having the customer make the payment to the purchase order financing company on your behalf. The financing company would receive the full payment, subtract the balance of the loan that you owe, and then pay you the remaining money as your profit.