Two types of alternative enterprise financing that are often confused are with each other, customer funding and purchase order funding. It is understandable that they are sometimes confused, however, they are two very different types of alternative enterprise financing that serve for very different purposes.
The financing of customer accounts is used when you have exceptional invoices on your aging report and want to access this money now instead of being paid at a later date. Note: To qualify for the financing of customer accounts, your product or service must have been delivered and invoiced; Otherwise, there are no creative invoices to use as a guarantee.
Both types of funding for the most commonly used accounts are asset-based loans and factoring:
Asset-based loan – You can get traditional banking funding or alternative enterprise financing in the form of asset-based loans. If you qualify for bank financing, first go that the cost of capital will always be lower than that of non-traditional assets. You receive a credit line from a bank or non-bank lender and use your customer accounts as collateral for the line. Each institution has different subscription standards; However, the important thing to remember is that the strength of your business will always play a role in approving approval. It will be possible to obtain banking financing if your company loses money because the banks are very conservative … and rightly; They do not make much money on your line compared to non-traditional lenders. These non-traditional lenders will always have to qualify your business in the underwriting process (although less strict) and have some line alliances to stay open.
Factoring – This is a form of financing in which a third party buys your account bills to a discount so that you can receive working capital today instead of having to wait 30, 60 or 90 days to pay. Factoring is more flexible than asset-based loans in the sense that you are qualified according to the strength of your customers and not your financial force.
The financing of the order order, also called PO financing, is used when capital is required to complete an order after receiving an OP. Small businesses starting to receive larger orders can turn to this type of alternative financing to help maintain growth. PO funding makes no sense when beneficiary margins are large enough to offset the cost of capital. This can be expensive; However, it remains cheaper than equity.
So, remember that the financing of the control commands is used at the front end of a client transaction and financing accounts is used at the end of the transaction. If your business requires funding for growth or survival, these two types of funding can be very useful financing tools.