The office supply market is incredibly competitive and is dominated by large companies with economies of scale. However, some niche opportunities exist where small and midsized supply companies still thrive. These companies usually need financing at some point in their growth trajectory. This article discusses how to finance operations and large orders for small office supply companies. We cover the following:
- Large orders and ongoing expenses
- Improve cash flow with factoring
- Advantages of invoice factoring
- Fulfill large orders with purchase order financing
- Advantages of PO financing
1. Large orders and ongoing expenses
Many small office supply companies avoid retail sales since large companies dominate that market. Instead, they focus their efforts on commercial and government markets. These clients tend to order office supplies regularly and often in large quantities. These sales create great opportunities but also have some challenges.
a) Ongoing expenses and slow client payments
Office supply companies usually make their commercial sales on terms. Sale terms usually give clients 30 to 60 days to pay their invoices, though this is negotiable. However, offering terms is not optional. It is a requirement of most commercial and government clients. You must offer terms if you want to get the contract.
Offering terms delays your revenues for each sale by 30 to 60 days. However, the office supply company usually incurs expenses to deliver the order. They must cover overhead, inventory, supplier payments, etc. This financial situation creates a gap in your cash flow. Office supply companies with a cash reserve can handle this gap by tapping reserve funds. Unfortunately, companies without a large reserve may encounter problems. These problems may spiral out of control if not addressed promptly.
Companies with this type of cash flow problem should consider invoice factoring. Find more information in section 2 of this article.
b) Very large orders
Large orders can provide a great opportunity if you have the resources to fulfill them. On the other hand, they can present a challenge if you don’t have the financial resources to fulfill them. Office supply companies that get a large order but don’t have enough sources have two options.
The conservative option is to decline the order. The order becomes a lost opportunity, and you could lose the client. Alternatively, you can accept the order and try to find a way to fulfill it. This risky option can lead to serious financial problems, disappointed clients, or both. Companies with this challenge should consider purchase order (PO) financing. PO financing helps product resellers by covering the supplier expenses of the order.
2. Improve cash flow using factoring
Invoice factoring enables companies to finance their accounts receivable. It enables them to monetize their accounts receivable quickly without waiting 30 to 60 days for payment. Transactions are not usually structured as loans. Instead, the factoring company buys your receivables and pays for them immediately. This structure simplifies qualification requirements.
Factoring lines are designed to work like a revolving line of financing. You can use it as often as needed to improve your company’s liquidity. Transactions are divided into two installment payments. The first installment is called the advance. It covers up to 85% of your outstanding A/R and is immediately deposited into your bank account.
The second installment covers the remaining 15% and is deposited once your client pays the invoice in full. The factoring fees are deducted from the second installment. Read “How Does Factoring Work?” to learn more about this solution.
3. Advantages of factoring
Using a factoring line can benefit your business in several ways. Here are the four most important advantages.
a) Improves cash flow quickly
The most important benefit of factoring is improved cash flow. It helps ensure your company has the liquidity to pay suppliers, employees, and other expenses.
b) Enables you to offer net-30-day terms
The line allows you to offer payment terms while minimizing the risk of cash flow issues. Office supply companies can grow their sales because they can offer terms to more clients.
c) Easier to get than bank financing
Factoring lines have simple qualification requirements and are easier to get than bank lines. Furthermore, most lines can be set up quickly. To qualify, clients must:
- Work with creditworthy commercial clients
- Not have liens against their A/R
- Experience management
- No serious tax issues
d) Adapts to your sales
Factoring lines are adaptive and connected to your revenues. Consequently, the line can grow as your sales increase. Qualifying for a line increase is simple and can usually be completed in a day or so.
4. Fulfill large orders with PO financing
Purchase order financing helps office supply companies that need funding to fulfill large orders. It provides financing to pay suppliers. This payment enables your company to procure the goods, fulfill the order, and book the revenue.
Transactions are relatively simple. The finance company evaluates your company, order, and supplier to determine if the transaction qualifies. If it does, they make arrangements to pay your supplier costs directly. The transaction can settle in two ways.
The first settlement option is to combine purchase order financing with factoring. This option can improve cash flow and reduce financing costs in some transactions. The second option is to settle the transaction once the end customer pays their invoice. Read “How Does Purchase Order Financing Work?” to learn more about this solution.
5. Advantages of PO financing
Purchase order financing has several advantages for small and growing office supply companies. These are the three most important advantages.
a) Allows you to take large orders
The most important benefit of using purchase order financing is that it enables you to fulfill large orders. It can be used to grow your company substantially while leveraging the credit quality of your client base.
b) Available to new companies
This solution can be used by startups that are relatively new. Your office supply company will need to show that it has completed a similar transaction to show that all logistics have been worked out.
c) Grows with your business
The line can easily grow with your business. In general, most PO financing lines have no set maximum, per se. Finance companies evaluate each transaction based on the quality of the purchase order, the strength of your buyer, and your capabilities to execute it.
Get more information
We can provide you with a competitive factoring or PO financing quote. We offer high advances at low rates. For more information, call us toll-free at (877) 300 3258.