LPO For Startups, Do You Really Need One?

Gathoni Kinuthia
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Gathoni Kinuthia
Let's Connec

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A Local Purchasing Order (LPO) document transactions made between businesses and vendors. The key elements being the price quotation, the quantity required and an agreement of terms. I deliberately highlight ‘agreement’ because that mutual understanding is crucial for supply and delivery.

Vendors are able to deliver goods or services and businesses use LPOs when doing invoices and making payment. LPOs are equally crucial even where ‘small money’ is involved. An entrepreneur can obtain capital LPO financing to execute work orders using these documents. That could make a difference to someone who is on the brink of ‘StartUp exhaustion.’

As an entrepreneur, you will come across terms that dominate market talk. You have invoices, receipts and bank statements to think about as well as the daily running of the business itself. Within the first six months of growing your startup business, hiring an accountant may not be a priority and so you may have to do your own book keeping or hire one on occasion. The numbers and financial commitments could overwhelm you if proper documentation is not done.

Why Your Business Needs LPOs

You need LPOs to track expenses and monitor your businesses’ profits and losses. These documents will give you clarity on what should come first in your business and how to strategize for better returns in your dealings. When doing document management and filing, LPOs will come in handy when balancing your books. Again, this will help you see what is coming in and what is going out.

Taxes are another reason for processing LPOs. Your businesses’ reputation will be acquired by the relationships you build with many publics including tax collectors (KRA). This will then influence how banks and other lending institutions will deal and negotiate with you. It will also save you the penalties charged for delays or defaults.

With LPO financing, ‘vendor entrepreneurs’ can source for financing from banks and other lending organisations. First, it helps the lending institutions check the legitimacy of the business sending the LPO to the ‘vendor entrepreneur’. Then it will justify why you need that financing in the first place. Secondly, it gives startup entrepreneurs ideas of where to get reasonable funding. In this case, reasonable differs from one vendor entrepreneur to another, so do the interest rates.One vendor could opt for LPO financing from a bank for 15-20% interest because they have multiple streams of income. Another who is hard-pressed for money could explore different financing avenues.

How to Use LPOs for Growth

Manufacturing more products or service could be supported by LPO financing. The strategic use of this money will give you a chance to scale up and be competitive hence make profit. 

LPOs give business owners the assurance that they will receive certain goods and services for an agreed price and the vendor will receive payment for services rendered. This kind of transaction keeps overspending at a minimum.

As an entrepreneur, you will not only acquire this knowledge but also learn the terms and processes for the sake of your business. It’s not enough to be informed by your accountant or a quick Google search, do the process on your own and muster it.

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