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Tata Capital > Blog > Wealth Services > A Step by Step Guide to Purchase Order Funding

Wealth Services

A Step by Step Guide to Purchase Order Funding

A Step by Step Guide to Purchase Order Funding

Ask any entrepreneur and they will tell you that one of the best things that can happen to a business is bagging the big order. It is, of course, the moment of truth. That big order is one that puts you on the map. However, getting that order is not just enough because executing the same is more important. What you would need now is the capital to make it happen so that the supply is smooth.

If you need the funds, this is the perfect situation for you to opt for purchase order funding. Designed for these big moments, such a loan will help you get funded to buy raw materials, must-have supplies, pay workers, and meet any other needs. The only focus of the loan is to enable your firm to complete the order and generate the invoice. There is no other loan better suited for purchase order financing situations. Here is a guide for you to know how this works

1. You receive a purchase order from a corporate client

Purchase order financing is a type of working capital loan. The start point of this funding process is when you receive a purchase order from your client or customer. This purchase order or P.O. is an important document. It mentions the money that you will get if the order is fulfilled.

The financial lender, who will provide you with purchase order financing, is interested in this figure. Tata Capital like most banking institutions ensures that vendors can take up new business opportunities without having to wait for advances. If you need to confirm an order, you don’t need to wait till you get funds. Click here to know more about P.O. funding.

2. You get a written proposal from a supplier on needs to get the order fulfilled

Once you get the P.O., you will have a clear understanding of margins and at which rate you can source raw materials. Not everything that is to be supplied will be with you. So, you will aggregate things.

It is important then to get a written proposal from your supplier on what are the things and what is their cost to get the client order fulfilled. Keep this document carefully with you, as this will play an important role in purchase order funding process.

3. Apply for purchase order financing

Once you know how you are fulfilling the client order, it is now time to apply for the purchase order financing. NBFCs like Tata Capital ensures that the borrowers go through minimum paperwork. Vendors would like to focus on order fulfilment, rather than get stuck in loan application paperwork. To know more about the documentation, click here

Do note that purchase order funding is often available for vendors dealing with selected corporates. The list of selected corporates is approved by the lender. So, you should check the same with your lender. If you are in the market for purchase order funding, you can click here to apply.

Make sure you get competitive pricing, which is leveraged on the corporate client’s credit rating, and simple documentation process. A quick transaction delivery makes purchase order financing an ideal way to meet your specific working capital needs. To know more, click here.

4. Repayment

Only once you have completed your order, repayment of the purchase order loan comes into play. However, you need to make sure that you invoice the final product correctly. As soon as delivery happens or after a due credit cycle, your corporate client pays the P.O. financier directly. Then, the final money to your end comes after the financier deducts any applicable fees and the rest is credited to you.

When you think about it, purchase order funding is one of the best ways to finance your business. This gives you enough opportunities to bid for the big businesses and orders that you were unable to execute due to lack of money. Get in touch with NBFCs like Tata Capital to know more.