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!
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.