If you run a business that makes things, you probably already know that invoice-based financing is used for cash flow management. What you might not know is that you have another option that might be even more efficient, provided your business uses purchase orders to authorize work on new projects. With a signed commitment to buy, you can tap into the order’s value to get the money you need to start working on it. That means it’s easier to take on big projects and rush orders, but can you use it for long-term cash flow? Yes, and it’s a simpler task than many think.

Financing Orders Selectively

Most purchase order financing is focused on just one order or a small group of them. This is because you have to have a complete purchase order and not have started work yet when you apply. As a result, you only need to take these steps on those large orders. The order’s value covers its own costs, and if you have your prices set at the right levels, the advance might even cover the costs of a couple of smaller orders. The result is that there are a bunch of small orders in your system that are essentially solid profits, their costs having already been paid by another job.

Meet Overhead Commitments Easily

With your cost for supplies and labor covered by those larger orders, you can keep more cash from the smaller orders ready for things like utility payments, rent, or loan payments. That makes it easier to pay those bills on time, minimizing late fees and friction in those business relationships. Once you have your budget organized between which financial tools are committed to which costs, the next step is adjusting to the payment structure you wind up with when you use purchase order financing.

Two Rounds of Cash for Most Deals

Since your cash advance from financing the purchase orders winds up being a percentage of their face value, there is still value in the order after it is paid. A portion of the remaining money gets dedicated to the fees owed to your financing company, but if there are no late penalties or other issues you can usually count on a smaller second-round payment. If the rest of your budget is covered between small orders and financing purchase orders, this becomes the cash you can commit to reserves, additional asset purchases, or even dividends.