Purchase Order Financing Blog

Purchase Order Lending - Find Your Financial Flow

Purchase Order Lending Times continue to be tough and businesses are still in need of financing for a variety of reasons. That’s where purchase order lending comes in, whether you are a new or existing business, take the time to give us a call. Unlike most PO lending companies our finance team takes the time to understand what your business does and then formulate a strategy to get you the working capital you need.

Do you need PO lending

Your business needs a large amount of working capital fast. You received a huge order from a customer, and don’t have the money to fulfill it. You need to hire workers, buy raw materials and meet production expenses. And the bank won’t approve a loan. Do you have to turn that huge order down?

Bad idea. Letting a large order go can hurt your reputation, chase away a good customer, and fail to take advantage of an opportunity that could show the marketplace your business is in growth mode. Accept the order - and get access to the capital you need through purchase order financing.

Purchase Order Lending Explained

Get a purchase order from your customer. Arrange your order with your suppliers. If the order passes our due diligence we take it from there, issuing a letter of credit to your supplier, receiving payment from your client, and passing on all but a fraction of the profit to you. And since you never actually handle the money, it never shows up as debt on your balance sheet.

Purchase order lending works because we are basing its risk on the credibility and financial soundness of the end customer who places the purchase order - not on the finances of your business.

Here are some common business situations for which PO financing is often well designed to support:

  • An established business receives a large number of orders during its peak season
  • A new business start-up has a commercial line of credit that simply isn’t high enough yet
  • A small business has an opportunity to expand and become a mid-sized business, but lacks the capital to do so

You owe it to yourself to consider PO lending as an option that may help you grow your business. And you may never have to consider turning down a big order again.

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For further information about us check out some of our past articles on Purchase Order Financing Basics and Government PO Financing.

Purchase Order Factoring - Danger Will Robinson

Purchase Order Factoring

Occasionally we get a call asking about purchase order factoring, which makes it clear to us that more reliable financing information needs to be available on the internet.

Why? Unlike the variety of creative funding solutions we do provide, PO factoring isn’t one of them because it doesn’t exist. Factoring is a completely different financial tool not directly related to PO financing in any way. Sure there are sites with dedicated pages discussing purchase order factoring, sometimes even blogging about it, but that doesn’t make it a real financial tool.

We can’t explain the need for some sites to misinform but we do believe that a potential client is better served dealing with industry experts who take the time to understand their working capital needs and have the knowledge to back up their services.

Purchase Order Financing Explained

As a new and/or small company with limited resources, how can you hope to support literally unlimited sales? By proving you do in fact have the orders.

The mechanism that lets you fulfill orders that seem larger than you can handle is called purchase order financing. Before we see how it works, lets back up and look at the conditions that might make it an option for you.

  • Your company - You’re a wholesaler, distributor, government contractor or reseller of manufactured products (not services). But your credit history is short, and your cash flow tight.

  • Your customer - A large, experienced or otherwise creditworthy company, retailer or government agency. As we will see, their stability is the key to deal.

  • Your supplier - Demands payment from you upfront - money you don’t have, but a financier does.

  • Your opportunity - Your customer places an unusually large order with you, and you have the purchase order to prove it.

That’s the situation. Here’s the solution:

1 - The purchase order becomes the collateral against which we take the risk of advancing the funds - up to 100% of your supplier expenses.

2 - We then issue a Letter of Credit or other form of guaranteed payment directly to your supplier. You never actually take out a loan at all.

3 - The supplier ships the goods you are reselling to your customer, who, upon receipt, makes payment to us.

4 - Minus a small commission we remit payment to you. You have fulfilled the order and made a profit without going into debt or even outlaying any of your own cash.

It’s a tool that allows you to grow without capital constraints - fulfill that big order and take your business to the next level. Finance purchase orders of any size. For literally unlimited sales. Not bad for a (formerly) small company!

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Our industry knowledge extends to an array of working capital solutions, such as PO financing, accounts receivable financing, invoice factoring and beyond. The first step is always to learn about your business and construct a plan that meets your needs now and moving forward.

PO Funding - A Finance Strategy for Growth

PO Funding You’ve passed the early tests. A large retailer has placed a few small orders with you, and you’ve handled them well. Now they’re ready to give you your first huge order and, with it, your big chance to take your young company to the next level.

So what is your next move? Consider the challenges. You will need to:

  • Purchase the goods you need from your suppliers, with upfront money you don’t have

  • Get the money you need from a bank, but without a long track record or history of impressive financial statements

  • Accept not receiving payment from your customer until 30 or even 60 days after they receive shipment, creating a cash flow gap you can’t manage

Turning down the order, losing your customer to a competitor, and missing out on your big opportunity to grow? Not an option. But PO funding is.

With a large retailer backing the purchase order we can fund your order by sending a Letter of Credit directly to your supplier to cover the cost of the goods you need. Technically, you don’t actually borrow the money, and it doesn’t count as debt on your balance sheet. When the entire transaction is complete, you have fulfilled the big order, earned your biggest profit to date, and effectively become a bigger company.

Is Purchase Order Funding Right For You?

Here are some of the characteristics of businesses that most frequently can benefit from purchase order loans. Every case is different, but in general it requires that:

  • You deal in manufactured goods, not services
  • Your profit margin on the order will be 20% or more
  • Your customer is established and creditworthy

If you meet these criteria, PO funding may be the best strategy for your first big test.

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Unlike other purchase order financing companies, we pride ourselves on taking the time to understand your business and then creatively structure a finance deal that maximizes your profits. New to PO Funding, check out some of our past blog posts including: What is Purchase Order Financing & Government PO Funding.

(Photo Credit: dlkinney)

Purchase Order Loan - Break Through to New Opportunities

Purchase Order Loan

No working capital, no growth, right? An importer or reseller’s ability to seize the next big opportunity depends on having the money to pay their suppliers. So where do you get it?

Options

Banks - Of course. If you’ve been running a profitable business for a few years, that is. And have great credit. But if this were the case, you’d already be able to access the working capital you need.

Investors - If you’re lucky. But don’t be surprise if they ask for a piece of your business, too - a deal breaker for many young businesses.

Purchase Order Loan - Yes. This tool is designed for smaller or start-up businesses that buy and resell or distribute hard goods. It works because you never actually have to handle the working capital - We provide payment (usually in the form of a letter of credit) directly to your suppliers, and then collect the end payment directly from your customer before passing it on to you (minus as small percentage).

Purchase Order Loan Benefits

Because a PO loan is based on the order itself - not on your current balance sheet - it can fund up to 100% of your obligation to your supplier on orders of virtually unlimited size. Unless your profit margin is small, purchase order funding may be your ticket to growing your business without needing help from a bank or other investor.

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New to purchase order loans? Check out some of our recent articles to get up to speed:

(Photo Credit: Skeli)

Purchase Order Financing Companies - Can They Be Creative?

Purchase Order Financing Companies

Challenging economic times call for creative thinking.  You have burned the midnight oil cultivating new clients, new products and services.  Then it happens, you get the order.  First you celebrate, and then reality kicks in. How do I pay for this? The standard channels keep saying no: banks are shut down, friends are unwilling, and vendors are stressed to the max.  Who will support this tremendous opportunity?  

PurchaseOrderFinancing.com has a long history of coming up with creative financial solutions utilizing a variety of products such as PO funding, invoice factoring, & accounts receivable financing to fit your business needs.  Each transaction has unique nuances.  We try to modify our funding programs to the needs of the transaction.  Most finance companies demand the transaction be changed to fit their “my-way-or-the-highway” program.  Listening is the key to a successful relationship and what makes us stand out from other PO financing companies.  Our goal is to build a long term relationship with our client.  

Often we get the call saying: my factory says “I need…”. We discuss the transaction, needs/structure of your buyer, needs/limitations of your supplier.  Then we discuss how our funding program can work with each unique situation.  Everyone wins.   

How Does PO Financing Work

Purchase order financing can be easier to qualify for compared to traditional financing methods, and allows you retain full ownership of your business. You can qualify if: a) your business sells a tangible product to other businesses with a good track record of paying their bills; and b) you have good prospects for growth, usually provable by having a specific purchase order in hand.

Example, XYZ company receives a large purchase order - so large that they cannot financially afford to fulfill it. (Businesswise, they can’t afford NOT to.) By using PO financing, XYZ can ensure shipment and delivery to its customer when the finance company pays XYZ’s suppliers directly. This is usually done with a Letter of Credit. The customer gets their goods and pays the invoice to the finance company, who pass along 95% or more of the proceeds to XYZ company.

Purchase order financing is available to new and established companies with a growing business. Wholesalers, resellers and distributors are likely candidates. Bypass the investor and the banker, keep your ownership and equity, and choose the option that lets you grow.

Learn more

For further information about us check out some of our past articles on Purchase order Financing Basics and Government PO Financing.