Growing your import business with PO Financing

Most import companies have seen their businesses grow quickly and dramatically in the past years. The decrease in the cost of overseas manufacturing combined with the unstoppable appetite of US consumers for more and cheaper products has created an upswing for the industry. Both large and small import companies have seen the size of their orders - and income - grow dramatically. However, for any company to grow successfully in this industry it must be well funded, or have a reliable source of financing.

Here is an example. Let’s say that your business wins a very large purchase order (PO) from a great client. To fulfill the order you go to your supplier and place and order. However, if your supplier is unwilling (or unable) to extend you terms, you may need to post a letter of credit or similar instrument. This is where small and mid size importing/exporting companies run into problems. If they cannot post a letter of credit, they will not be able to fulfill the order and will lose the business. This is also where purchase order financing can help you.

What is purchase order financing?

Purchase order financing can help you fund orders that you cannot fulfill directly with your own capital. It enables you to secure large orders from customers and deliver them, while using little if any of your own funds and leveraging the funding company’s financial strength. PO financing lets you grow your company using other people’s money. It’s a great tool to take your business to the next level.

Interested in an instant purchase order financing quote? Please click here. Prefer to speak to a professional right now? Please call (866) 730 1922 (toll free USA and Canada)

The basics of purchase order funding

A PO financing transaction is fairly simple. Once you have a PO from your customer, The PO financing company provides financing for the transaction, enabling you to purchase the products from your suppliers and deliver them to the client. Once the goods are received and confirmed, the PO funding company pays your supplier (on your behalf). Payment to your supplier can be provided using a letter of credit or other similar facility. Once the goods have been received, you can send an invoice to the customer and then wait for payment.

The transaction is settled once your client pays the invoice. If the transaction was structured properly and if your margins were good, the transaction should require little if any out of pocket expenses from your company. This is why PO financing is so powerful.

The cost of PO financing

The cost of PO financing is based on a number of factors, such as your industry experience, transaction complexity and the credit worthiness of the paying customer. A rule of thumb for the industry is that a transaction should have profit margins of at least 20%, or better. That will allow you sufficient cushion to cover the cost of PO funding and still realize significant profits.

Cost reduction tricks

The main cost driver in purchase order financing is transaction risk. The risk of the transaction is reduced substantially once the product is delivered and an invoice is generated. It is common to reduce the cost of the transaction by factoring the invoice, and then use the invoice factoring proceeds to close the purchase order financing segment of the transaction.

Since accounts receivable factoring is cheaper than PO financing, this little trick can reduce the total cost of the transaction by a few points. To capitalize on this reduction trick, you should consider factoring receivables and be sure to work with a factoring company that also does po funding.

Want an instant purchase order financing quote? Click here to get an online quote now! Questions? Call (866) 730 1922 . We offer services in the USA and Canada.

Need more information? Go to the purchase order financing resource center or to the main purchase order financing page.

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