This is an option where a financier funds business to enable it to deal with a high number of orders from the customers. In every business inadequate capital is the common challenge where the market goods and services are in higher demand but no money to supply the goods. The business owner cannot afford to lose the customer, and this is when he has to look for external finances to meet the demand from the customers.
Purchase order financing allows one company which has a capability to provide goods to the client on behalf of another company which has little funds. The company may finance the whole order or a certain percentage as according to the agreement of the companies involved. This option is mostly preferred by many businesses than to visit a bank which has a tiresome process to access the loan. In purchase order financing the only consideration is the trust and creditworthiness which the client has created previously in other purchases. It remains the viable option for new businesses and the one with the small source of fund to run their businesses.
The economy of every country depends on the importation and exportation of goods and services. For a country’s economy to grow the small and medium-sized businesses must be supported in all basis and given a comfortable environment to run their activities. The licenses should be cheaper and have a way out of registering of new companies and business permits. The government should continue regulating the banks and credit lending companies to allow easy accessibility of loans with low interest. This encourages many youths to start their businesses and creates self-employment.