Accounts Receivable Financing for Businesses

Purchase order financing is a facility availed of by many businesses and is especially helpful if you are a reseller or an agent or an intermediary with limited liquidity that is requisite to finance your transactions to move materials and keep the business running. Purchase order financing is a viable solution for any business. To understand its need we need to first understand the business process.

Let us consider the case of, say a software reseller who has received a purchase order from a customer. A purchase order is a document detailing the type and number or units of the required product or service. All the details should be clearly mentioned here and there should be no room for ambiguity. Any ambiguity could lead to misunderstandings and lawsuits.

Now the reseller contacts his principle. Principle refers to the parent company, that is, the actual makers of the software who instead of hiring, training, managing and paying for a sales team have opted instead to outsource the selling part of the job to somebody already in the business, that it, they have partnered with a reseller, also known as partner. To understand why the reseller needs purchase order financing, let’s understand how a reseller operates.

A reseller, as the name implies, ‘resells’ the software, that is first buys it from the principle, then adds his own profit margin and sells it to the customer, hence essentially acting as some sort of distribution agent. Before the transaction between the reseller and the end user occurs, the transaction between the principle and the reseller occurs. The reseller will first have to buy the asset from the principle with his own money. Money that might not always be available and this is where purchase order financing plays a crucial part.