Every now and then, a business needs some help with funding. It’s a common occurrence, especially with smaller business wanting to grow. The hard part comes when trying to decide which method of funding to use. With all the different companies and ways of doing business that have developed, it makes sense that there are also several different methods of financing said companies. Knowing how each works is important in choosing the best option for your business, since many are designed for different situations. Two popular but different methods are known as accounts receivable financing, and purchase order funding. Being savvy on their differences could save the right company precious time and money.

To understand their differences, knowing how each works is key. A purchase order is a document of the first official request from a buyer to a seller, indicating types and amounts of items, along with other specifications. A contract between the two is formed when the seller accepts this order. Such an order allows the customer to be perfectly clear about what they want, and also protects the seller in case of the buyer’s inability to pay. Purchase order funding is done when the seller does not have the funds they need to pay their supplier, but still has an order they need to fulfill. This is an option when the amount needed is larger than what a bank will provide. With their supplier costs completely financed, these business are able to see to other business expenses.

Meanwhile, factoring receivables is different in that it requires the sale to have already been made. This creates the invoice which is then sold to a factor at a discounted price. After collecting the full price from the buyer, the factoring company takes its fee and pays the remaining balance to their client. This method of finance is open to all types of different businesses, while purchase order funding is mainly restricted to producers and distributors of tangible products. The funds gained from accounts receivable financing also have less restrictions on what they can be used for. However, restrictions can be a good thing sometimes. The choice all depends on what is the best fit for the business.

When a business needs help with their funds, this issue isn’t even the main concern. Picking the best and most affordable solution for the company’s needs becomes the top priority. When making the wrong move could lead to a loss of this funding, knowing all the details can only help you. A bit of research educates anyone on the difference between these options, and enable those in charge to make the best possible decision.

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