If you are in the fashion business, you know that cash flow is king and that staying ahead means having the right financial strategies in place. But what if you’re struggling to secure the funds needed to keep your apparel business flourishing? This is where purchase order financing comes in. In this article, we’ll take you through the fundamentals of purchase order financing, empowering you to make informed decisions that drive your apparel business forward.
Understanding Purchase Order Financing: How Does it Work?
Purchase Order Financing is a specialized form of funding designed to help businesses, including apparel companies, fulfill large orders when they lack the necessary capital. It provides funds upfront, bridging the gap between production costs and customer payments. It’s beneficial for businesses experiencing rapid growth, seasonal fluctuations, or those with limited access to traditional financing options.
So how does purchase order financing work, exactly?
When a company receives a sizable purchase order but lacks the necessary capital to cover production or procurement costs, a financing entity steps in. It typically provides a cash advance to the supplier or manufacturer, allowing them to fulfill the order. Once the goods are delivered to the customer, the financing entity collects payment directly, deducts its fees, and then forwards the remaining balance to the business. This straightforward process empowers companies to seize growth opportunities without being hindered by financial limitations, making purchase order financing an invaluable resource for optimizing inventory management and expanding operations.
Benefits of Purchase Order Financing for Apparel Businesses
Purchase order financing offers a lot of advantages, especially to apparel companies. It helps these businesses:
Overcome Cash Flow Challenges
Apparel businesses frequently receive large purchase orders from clients or retailers as they grow and expand their market presence. However, these businesses also encounter cash flow hurdles, particularly when required to finance production costs upfront before receiving client payments.
Purchase order financing effectively mitigates this challenge by furnishing the essential capital to cover production costs. This ensures seamless order fulfillment and revenue generation, enabling apparel businesses to meet customer demand and capitalize on sales opportunities without the fear of cash flow disruptions.
Manage Seasonal Fluctuations
Purchase order financing offers a strategic advantage to apparel businesses in managing seasonal fluctuations. During peak seasons, when demand surges and production costs escalate, companies often face strain on their cash reserves. With purchase order financing, apparel businesses can secure the necessary funds to ramp up production and meet heightened demand without depleting their working capital. This flexibility enables them to capitalize on seasonal opportunities, fulfill large orders, and maintain consistent operations throughout fluctuations in demand, ultimately fostering sustained growth and profitability.
Build Relationships with Suppliers
Purchase order financing plays a pivotal role in nurturing strong bonds between businesses and their suppliers. By offering upfront capital for production expenses, this financial tool builds trust and reliability. Suppliers are assured of timely payments for their goods and services, prompting suppliers to prioritize the company’s needs and potentially offer advantageous terms or discounts. Transparent and efficient transactions also enable smoother communication and collaboration, which in turn paves the way for mutually beneficial partnerships.
Enjoy a Flexible Financing Solution
Traditional loans or lines of credit often come with stringent eligibility criteria and fixed repayment terms. On the other hand, purchase order financing offers flexibility tailored to the specific needs of apparel businesses.
For instance, Kickfurther offers purchase order funding at an estimated 30% lower cost than alternate lenders, ensuring you can fund your entire purchase order every time you need more inventory to fulfill your client’s needs. With this option, you can secure funding quickly and efficiently, with repayment typically tied to the proceeds from the completed sale of goods.
Scale Operations
Apparel purchase order financing scales alongside the growth of the business, enabling companies to fulfill increasingly larger orders as demand expands. This scalability is particularly beneficial for startups and emerging brands seeking to establish a foothold in the market and build a reputation for reliability and quality.
Expand Market Presence
To remain competitive in the apparel industry, businesses must continually innovate and adapt to changing market trends and consumer preferences. Purchase order funding facilitates product innovation and market expansion by providing the capital needed to develop new designs, launch marketing campaigns, and penetrate new markets. This allows apparel businesses to stay ahead of the curve, differentiate themselves from competitors, and capture market share.
Final Thoughts
Apparel purchase order financing stands out as a strategic choice for meeting the specific challenges of fulfilling large purchase orders because it leverages the value of confirmed purchase orders themselves. This means that businesses can access funding based on the strength of their sales pipeline, rather than relying solely on their financial history or asset base.
Compared to other financing options, purchase order financing provides a targeted solution for securing the capital needed to fulfill orders and drive growth, while minimizing risk and maximizing efficiency.
How Kickfurther Can Help
Let Kickfurther be your trusted funding partner and get funding for up to 100% of your purchase orders at competitive rates. Fund your entire purchase order(s) on Kickfurther each time you need more inventory so you can put your existing capital to work growing your business without adding debt or giving up equity.
Still not convinced? Here are some more reasons why you should choose Kickfurther:
- No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
- Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
- Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
- Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. By funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it.
Ready to grow and scale your business? Create a free business account today, complete the online application, and review a potential deal with one of our account reps to get funded within minutes to hours.
