What’s the Difference Between Purchase Order Financing and Factoring?

Understanding your financing options can be a lifesaver when your business runs into a budgetary snag. Whether you’re looking to free up some capital to grow your business or are falling short on covering monthly expenses due to negligent customer payments, there are many solutions available to suit your needs. Knowing the key differences between a service like an invoice factoring and purchase order financing can help you select the most appropriate option to help your business thrive. Consider these points to get a better feel for the specifics surrounding these financing solutions.

Invoice Factoring

Invoice factoring is a service that involves selling unpaid invoices to a company that specializes in the service. If you qualify, the company will provide you with a percentage of the total value of the invoices in cash. After this, the company will go about collecting the full amount of the debt from your client and provide you with the difference. While there is a fee involved, this is a useful service to consider when your operations are being held back by late customer payments. Plus, this service can be utilized whenever you have cash flow troubles.

Financing Purchase Orders

While there are similarities between invoice factoring and purchase order financing, the main differences revolve around how the funds are distributed. Factoring invoices provide you with a lump sum of cash whereas financing purchase orders give you a line of credit. The value of the credit line is determined by the purchase orders you put forth as collateral. This can be a useful solution when you are looking for a way to cover specific expenses as they come your way. Organizations involved with manufacturing and distribution usually select this option as it best fits the business structures.

Determining the Appropriate Option

In order for you to select the right financing service for your needs, take a moment to consider a few factors. For one, you want to think about what you need to use the funds for. If you are looking to cover a growing expense related to your business that has been delayed due to outlying factors, you may wish to consider factoring your invoices. When you want extra capital to take care of covering the expenses related to restoring or remodeling your business, then financing your purchase orders will prove more useful.

When it comes to the future of your business, understanding your financing options can be crucial. Take time to look into services like purchase order financing and invoice factoring to select a solution that will help you get your company ahead.

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