Many companies — particularly small businesses — are curious about purchase order financing as a method to obtain working capital.

But what is purchase order financing, how does it work, and how might you use it to grow your business? These are the questions we will address in this article.

What is Purchase Order Financing?

Let’s start with a somewhat formal definition, and then we will simplify things. Purchase order financing is when a company assigns their purchase orders to another company (usually a working capital financing company) in exchange for cash flow. The purchase order would then be paid to the working capital finance company.

In other words, purchase order financing is a way to liquidate purchase orders to obtain much-needed working capital / cash flow. Many small and medium-sized businesses use this process to cover certain operational expenses, or to purchase supplies, materials, etc.

Who Should Seek Purchase Order Financing?

When pursuing any form of business financing, it’s important to remember that only you can decide what’s best for your business. Purchase order financing is a good idea for certain businesses in certain situations. But like any other type of financing, it may not be applicable in all situations.

Here’s a basic profile of a business that might benefit from purchase order financing:

• Purchase orders are a main part of the company’s revenue structure.
• The company needs additional working capital for operational costs, acquisitions, etc.
• The company needs this additional cash flow quickly, which means traditional lending channels are not an option.
• The company wants to achieve larger profits by taking larger orders.

Learn More

If you would like to learn more about purchase order financing to find out if it’s a good fit for your business, please contact a Far West Capital representative today. Contact information

Continuing our lesson on working capital financing terminology, this blog post will explain the term “accounts receivable factoring” as well as the concepts behind it.

Accounts receivable factoring takes place when a factoring company purchases a company’s invoices and in turn provides the company with working capital. Here’s an example using a fictitious company that we will call ABC Staffing Company.

Let’s say that ABC Staffing sends temporary employees (temps) to various companies in their operating area, and that they operate on a basic 30-day invoicing program. If ABC needs additional capital / cash flow to cover certain operating expenses (like paying the temps), they can assign their invoices to an accounts receivable factoring company in exchange for cash flow. This will help them cover their day-to-day operational costs, like paying those temps.

The company’s who owe ABC Staffing would then send their payments to the accounts receivable factoring company (instead of sending them directly to ABC Staffing).

Note: If you learn better with the help of visual aids, diagrams and the like, be sure to check out the accounts receivable diagram on our Services page. We have a diagram that shows the process of accounts receivable financing in illustrated fashion.

What is working capital finance? How do factoring services work, and how can they help you grow your business?

These are some of the questions we will answer with the Working Capital Blog. So let’s start with one of the most common questions people have about this subject. Let’s start with a basic definition of financial services that use factoring.

Factoring Defined
Factoring involves the purchase of accounts receivable, such as invoices, from a business. Basically, the factoring company purchases a company’s invoices and provides the company with working capital. This way, the company can liquidate their invoices in a timely fashion to obtain much-needed working capital (money needed to operate their business).

Factoring Financial Services
Now that we know the basic definition of factoring, we can more easily understand the concept and practice of factoring financial services. These companies, such as Far West Capital, provide financial services to business that involve — among other things — factoring of accounts receivable. In this way, factoring financial services can inject additional cash flow / capital into the business who needs it.

If you have questions about factoring financial services in general, or about our factoring services in particular, please contact a representative.

Today is a milestone for Far West Capital. We have officially launched our Working Capital Blog, and this marks the first of many blog posts on the subject of working capital finance, small business financing and similar topics.

What the Purpose?
We will use this blog to educate customers and non-customers alike on all aspects of working capital financing, accounts receivable financing, and other types of small business financing. We will also provide a variety of tips on business success in general.

Why Read It?
Any business interested in working capital financing (or the other financing topics mentioned above) can benefit from reading our blog. We will publish new information, articles and tips at least twice a week. So if these topics are near and dear to the financial success of your business … be sure to bookmark the blog’s main page.

Leave a Comment
If you have a comment or question about something you read on this blog, just use the “Comments” box directly below that particular blog post. You may also contact us directly via the phone number or email address on our Contact page.

We hope this blog helps you in your quest to understand the world of working capital finance. Enjoy!