Purchase Order Finance: Best Solution for Working Capital Management

Purchase Order Financing or PO finance are the same names for a type of funding that helps firms pay their suppliers of raw materials against the raised purchase orders. This helps them in efficient management of their cash flow.

In the purchase orders, the seller-agreed rates for particular quantities are mentioned for purchase by the buyer. Once these are acknowledged by the sellers, they are treated as buyer-seller agreements. And in the event the buyer needs help in financing for the order, he can seek help from various Fintechs like Oxyzo Financial Services Pvt Ltd offering purchase order financing. He can use these funds to pay the supplier for the commodities mentioned in the purchase order (PO).

Whenever a buyer receives an order for production, it’s a good indication. However, at a particular time, the company may not have sufficient inventory to produce the finished goods or make the supply as per the order. It needs the operating capital in hand to make the order. In such times, the company may need to procure raw materials for producing goods for which the company will be liable to receive the payment on order completion. The company may at a particular time not have enough liquidity to pay the supplier upfront. Even advance may not be sufficient to fulfill all the raw material purchase requirements.

So, the company needs substantial finance both to fund the production as well as keep its operations seamless until it gets paid in full and final from the client. Besides, the payment terms with the client may be hefty and may take a long time.

This may pose a difficulty for the producer to manage the working capital if the company’s operational costs are used for making raw material purchases. This is the most commonly faced problem by Micro, Small and Medium scale Enterprises (MSMEs). Such cash flow problems represent significant issues for small business owners.

Here is when purchase order financing can be the best solution to keep the company operations running smoothly without any disruption. It is a kind of working capital loan whereby the producer can purchase raw materials and fund the production process. Here, the company has to pay the interest for the amount (PO amount) only for the time it has been consumed.

Since the lending financial institutions restrict the purchase order financing beneficiaries from using the funds for any purpose other than the purchase order, it helps as an alternative for funding the production. The payment is directly made to the supplier of the raw materials. This also helps the buyer in fulfilling the order requirements while also keeping the credit history clean for other types of business loans and working capital loans.

PO from a big corporate in hand can give you an edge in bargaining for the rates for bulk purchases. Such an advantage is possible because of the buyer being a reputable company. This helps the lending institution believe that the buyer will honour the commitment. And that’s why PO funding solutions are secured against verified and confirmed purchase orders.

Another problem faced by SMEs is the lack of credit lines as compared to big corporates. This often makes it difficult for these companies to access working capital. 

With a fast-onboarding protocol, Oxyzo is helping such SMEs grow and thrive by cutting the time between the client’s order and starting of production. SMEs receive the best help to fulfill outstanding orders. Additionally, they can grow their customer base with the existing resources and without any disruption to the cash flow.

Shortage of working capital to fulfill outstanding orders without disturbing the company operations and credit gap are major challenges in front of any business when an opportunity knocks on its doors in the form of a good purchase order.

Oxyzo purchase order financing solutions are helping its clients to grow with existing resources and yet make them capable of availing of new business opportunities. And all of this is possible without them having to wait for advances. And hence, PO financing is the most viable funding solution. And it is handy even for businesses with low creditworthiness without affecting their credit score for availing other forms of corporate loans.