Issues to consider before using a purchase order financing company

by | Apr 11, 2015 | Financial Services

The best way to rise above your competition in the business world is through company growth and offering the best inventory or services. But it’s a vicious circle, and startup or small businesses may have trouble getting the advanced funds they need to add inventory or expand to a better location. When you are in need of working capital for your business to thrive, consider financing your purchase orders.

Do you understand the costs and benefits?

As with everything in life, it comes at a cost. Nothing is free, but as a business owner you know that’s what makes the world go ‘round. When dealing with a purchase order company or factoring firm, be sure you know about all of their fees prior to signing the agreement. Don’t be afraid to ask about application fees, account access fees, hidden charges and daily or weekly percentage fees, and make sure you fully understand them from a practical standpoint. Can you meet the fee terms, or will it be a struggle? If something doesn’t sound right, ask for clarification, and don’t be afraid to negotiate with the finance company. If it doesn’t work out, find another firm. If you ever feel pressured into signing anything, consider it a red flag of an unreliable firm, and quickly exit the building.

Negotiate what you need for your business

It’s your business, and you have worked hard to see it thrive. Just because you need a little advanced funding does not mean you are in a desperate situation and need to take whatever is offered. Be selective in the terms you require, and do your research well in advance. If something sounds wrong or too good to be true, consider it with caution. Negotiate with the firm and make sure the agreements benefit your unique business to the fullest before you take the next step. Ask for references, too! Many firms will provide these in advance before you even ask, and others will be perfectly proud to show you the big-name companies they have assisted in the past once you ask. If the firm has no references, or only has unknown and obscure companies no one has ever heard of, consider it a red flag. Don’t ever be forced into a situation you are uncomfortable with, and also feel free to consider alternatives or other funding options. Purchase order financing is a great option for some businesses but may be a new and confusing process for you.

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