Some business owners are confused about securing funding for an upcoming job. The mistake is in assuming that a purchase order or contract award for a product or service will allow the vendor to pull out cash in order to the contract up and going. Unfortunately lack of capital is a bad sign for a start up.
Using funds to get a contract started is called mobilization capital. Unfortunately P.O. Funding companies will not offer mobilizing capital to start up a contract. P.O. financing is only to guarantee a payment to a supplier usually a manufacturer. Purchase order financing is used when a product is made and shipped directly to the end user. In this scenario the PO funder only has to guarantee the payment to the supplier rather than a situation where the vendor has to assemble parts to create a product.
Mobilization funding is unsecured cash upfront to buy supplies or hire people to get a contract moving along. A factoring company can’t start funding until the contract gets to the point of submitting an invoice. Once invoices are created then the cash flow can happen through leveraging those receivables.