Stefan owns a lumber yard and has a R500 000 purchase order from a construction company.His cost of goods sold for this order is R300 000.Because his company needs working capital, the most logical loan for the lumberyard would be to use ________.
A)an equipment-based loan.
B)factoring.
C)purchase order financing.
D)asset-based financing.

Question

Quizplus · Accepted Answer

Purchase order financing is a type of short-term lending that helps businesses fulfill orders from clients by paying suppliers for the goods needed to fill the order. In this case, Stefan can use purchase order financing to pay the supplier for the cost of goods sold, which frees up the revenue from the order for working capital. This allows Stefan's lumberyard to fulfill the purchase order and maintain their business operations without sacrificing cash flow. Option A, an equipment-based loan, is not relevant to the purchase order and would not address the immediate need for working capital. Factoring (Option B) is a type of financing where a company sells its invoices to a third party, but this option would not be necessary if the lumberyard has the purchase order in hand. Asset-based financing (Option D) uses the company's assets as collateral for a loan, which also does not address the immediate need for working capital.

Stefan Owns a Lumber Yard and Has a R500 000