Sometimes it can be tricky to distinguish between invoice factoring and purchase order financing since both have the same goal. They are made to assist businesses that have sales that exceed the revenues that are coming in. However, each of these types of financing has a different method for managing cash flow, so knowing the difference is crucial.
Purchase Order Financing
With purchase order financing, working capital is provided to your business when you have sale orders but don’t have the needed revenue to make the transactions. Your purchasing needs are funded so you can finish the sale to a customer. This kind of financing works well for businesses with short-term funding need and creditworthy customers.
This financing can be used for manufacturing or purchasing products that have already been bought by someone. Funds are provided so you can get the inventory you need. Many businesses can use this kind of funding, especially those in manufacturing, exporting, importing, or distributing.
With invoice factoring, the loan is designed for a business to move from delivering a product or service to receiving the invoice. It can be used by a company that has sold services or goods but needs to receive payment. With this option, a small or medium-sized business can grow and succeed. It offers immediate cash for items or services sold each day.
The money from this financing choice can be used to fund new products and services, grow your business, get vendor discounts, and create leverage with suppliers.
What your business does and what you need the money for will dictate which financing option is right for you. If you aren’t sure which is right for you, Third Bay Capital can help. We’ll work with you to get the perfect funding to build your business!