Sometimes, in business, your customer may place a large order that gets you excited. However, when you check your inventory, you realize that you do not have enough products that the customer has ordered. Moreover, you have no cash in hand to purchase the required items. Do not panic – you have many options available, one of the best being purchase order financing. This type of funding allows companies to pay for goods from a supplier before the customer sends in their payments.
Typically, four parties work together to make the purchase order financing a success;
Borrower/seller – needs financing to serve a customer’s order
Lender – finances the transaction
Supplier – provides the items ordered by the customer
Customer – initiates the process by making a purchase order from the borrower/seller
Now that you understand the parties involved, it is essential to know how the whole process takes place. The steps involved are:
Issuing of a Purchase Order
The customer does this by sending a purchase order to the seller with the intention of buying from their business.
The seller informs their supplier about the order and requests a quotation to show the total cost of getting the ordered items.
Purchase Order Financing Application
After receiving the quotation, the seller then applies for purchase order financing from the lender.
Paying the Supplier
The lender pays the supplier to deliver the products needed to fulfill an order.
Fulfilling the Order
Once the supplier is paid by the lender, they offer the products listed in the order and deliver them to the customer without involving the seller.
The customer receives an invoice for the purchase they made from the seller.
Making the Payments
The customer makes the payments according to the invoice.
The lender deducts any fees outlined in the agreement and sends the remaining money to the seller.
If you are a business owner, it is imperative to understand the process of purchase order financing and the parties involved. Talk to Triport today to get clear guidance on how to manage your business.