What You Need To Know
What is Purchase Order Financing?
Purchase order financing is when a factoring company pays for materials that you've ordered, but have not yet been delivered to your job site. With purchase order financing, newer companies, and companies looking to grow, can start larger projects with out having to front the cost for materials themselves.
How Purchase Order Financing Works
Your company is starting a new project, and needs to order the necessary materials to mobilize. You contact your supplier and get a quote. You then send a copy of the purchase order to your factoring company. The factoring company pays your vendor, and the supplies are delivered to your job site. When the job is done, you'll invoice your customer. The customer will then either pay you and you will then pay the factoring company, or they will pay the factoring company directly. If your customer pays the factoring company directly, the factoring company will deduct the principal, and fees they're owed and forward you the remaining sum of money. Whether or not the factoring company will allow the payment to be sent directly to you depends on the factoring company you choose to factor with.
Grow Your Business
Procuring materials comprises a significant part of any construction project, and consequently, it also takes a huge chunk from a construction company’s funds. Vendors often require sub-contractors to pay the full amount of materials, especially if there is no prior relationship between you and them. Of course, you can’t start the project and therefore earn income without the necessary materials. To solve this problem, sub-contractors can turn to purchase order financing to grow their business.