Funding Your Largest Purchase Order to Date

For many small businesses this could be the most anticipated yet dreaded order. This is the largest order in your company’s history. It’s the one that you have been waiting for.

But it’s also the one that you’ve been dreading the most. Do you have the upfront cash to complete the order? Do you have the operating capital to even consider accepting the job?

As exciting as that moment is when you receive the biggest client/order/customer in your company’s history, it can also be the scariest when the realization sets it. The reality comes crashing down – materials, parts, labor, warehousing, logistics, overhead. The list goes on.

How will you prepare your business when the big day hits? What will you do to immediately raise the cash to be able to accept the business?

Don’t turn it down

You’ve worked hard to build the business, make a name for yourself, and provide a quality product or service. You cannot afford to turn down the biggest job yet.

If you can’t compete for big jobs, you will not be able to grow your business. Even if you don’t have a plan in place, figure out how to manage the job and take it. The future of your business depends on this decision.

Look at loan options

When businesses are faced with a shortfall, they often look to banks for short or long term loan options to get them through a rough patch. Traditional bank loans may work great for some kinds of small business shortfalls, but this may not be one of those situations.

Banks and bank loan applications take time. When you’re faced with a large client or a large order, time is probably not on your side. You have to get to work to fill the order, meet production deadlines, or provide timely service. You don’t have time to wait for the bank application process.

There are several online options for small businesses that promise quick turnaround and little paperwork hassle. These might be an option for your business, but they also come at a price. You will pay for that quick service through inflated fees and rates.

Check all of your bank loan options and get an understanding of the timeline from the lender before you commit to a traditional bank loan.

Payment terms

Many companies offer discounts to their customers for paying within a certain amount of time. If you offer your regular customers terms of 2/10 net-30, for example, you have a better chance of receiving payment within 10 days.

This strategy can help you to possibly get cash from your outstanding invoices quicker. However, you are discounting those invoices and accepting 2% less than you originally billed.

What if your customers choose not to pay within the discount period? That’s a risk you take by trying to raise cash quickly through the discounting method. Your best bet is to combine this strategy with another option to quickly get the funds you need.

Invoice factoring

One other financing option available to small business is invoice factoring. You can work with a finance company that will advance you the money for your outstanding invoices.

If you have enough in your accounts receivable to cover some of the costs of the large order, you may consider getting an advance on those invoices. This is especially helpful if you have customers who typically delay payment or you have a large amount of money tied up in complete, unpaid jobs.

The downside of invoice factoring is the fee. You will be paying a premium on your invoices by taking the advance, which was likely not factored into your original budget. But if you need to raise money fast to take on that important job, this may be one of your best options.

You never want to have to turn down a job, especially one that dwarfs all of your other orders or clients. Having access to cash, either through accounts receivable or through bank loans, is an important consideration for your small business. Be prepared with a plan when that big order comes across your desk.

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