AR/PO FINANCING: WHICH IS RIGHT FOR YOU?AR/PO FINANCE
What are AR & PO Financing?
Simply put, AR & PO Financing are alternative financing options to a traditional business loan.
AR (Accounts Receivable) Financing involves selling outstanding invoices or other receivables at a discount to a factoring or financing company, who then assumes the risk on these items and provides quick cash to your business in return.
PO (Purchase Order) Financing is a loan or an advance given that is secured by a purchase order or contract. The purchase order secures financing for items needed to produce and ship a product or deliver a service.
These can both be helpful methods of securing business financing, especially for business owners whose credit rating is on the low side and/or they are in need of capital immediately. As with anything, there can be pitfalls. With AR Financing, there may be hidden charges for older debts that can include penalty fees, renewal fees, insurance costs, and re-factoring charges. PO Financing tends to favor certain businesses more than others, such as those making goods (not services), those whose profits on the order will be more than 20% and those who have customers who are established and creditworthy.
Benefits to AR Financing:
- Quick financing, which can help you establish business credit
- Pass off collections to your factoring or financing company
- Frees up working capital so that you can continue to run your business
Benefits to PO Financing:
- It pays your supplier
- It’s not a loan, so you don’t have to worry about repayment in the same way as you would for a loan
- It includes collections
- It doesn’t require you, or your business, to have A-1 credit
- It allows you to take on the big jobs your business needs to thrive
So…HOW does PO Financing work exactly?
While AR Financing is fairly easy to understand, PO Financing is a little tricky. Let’s break it down here:
- Your company gets a verified purchase order or contract from a customer.
- You estimate the costs required to produce and deliver the product (or service).
- You approach your lender about financing, using the contract as collateral.
- If the lender deems you creditworthy, they approve your request.
- The lender then advances you a percentage of the total order value that you can use to purchase what you need to make your goods or provide your services.
- When your customer pays the invoice, you repay the lender the principal, interest and any associated fees there may be.
Where CreditHub Comes In
Of course, this is a lot of information to digest, and we want you to know that we’re here for you every step of the way. Your personal advisor can assist you in determining which alternative financing option is right for you, as well as help secure the funding. You’ll have access to everything you need through our secure portal. And you don’t have to pay us a dime. Contact us now. We look forward to working with you.
1.25%- 4% discount