Purchase Order Financing Basics

Let’s say that your company suddenly gets a large purchase order from your best customer. However, it is a PO that is clearly too big for your company. What would you do? If your company has a good banking relationship perhaps you may be able to tap into a line of credit or a business loan. But what happens if your company is small or new or you have no established banking relationship? Do you turn the client away and send them to a competitor? Luckily, you don’t have to. Purchase order (PO) financing may be able to help you make the sale and deliver the order.

What can purchase order funding do for you?

Purchase order funding is a tool that allows you to fund your large orders. It provides the necessary financing to fulfill orders that otherwise you could not afford to deliver. When used properly, it can enable your business to grow quickly.

As opposed to a business loan, purchase order funding does not rely on your company’s financial strength. Rather, it relies on the financial strength of your clients. So, if you sell products to large corporations or to government/state agencies, purchase order funding can be the ideal option to fund those sales.

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.

Who is a good candidate for purchase order financing?

To qualify for purchase order financing, your business must sell goods rather than services. The ideal candidate for this type of financing is a reseller or distributor who is buying products from a supplier and then delivering them to the client. Purchase order funding can also work in instances where goods are sold in conjunction with services (e.g. maintenance), however, the goods part of the purchase order must be separate from the services component.

The business case for PO financing

PO financing is fairly simple to use. The PO financing company buys the goods from your suppliers (in your name), using a letter of credit or bank wire. Once the order is delivered and approved by your client, the funds from the letter of credit are released to your supplier, ensuring they get paid.

At this point in the transaction, the order has been delivered and an invoice is issued. Once an invoice is paid, the transaction between the parties is settled. Since most invoices take 30 to 60 days to get paid, it is common to combine PO financing with invoice factoring because this enables you to reduce the total cost of the transaction.

Receivables factoring is a type of funding that provides you with business financing based on your receivables (or invoices) for delivered goods. Usually, once an invoice is generated, the invoice is factored and the funds are used to close the PO funding facility. Factoring receivables helps lower costs because the rates for PO financing tend to be higher than the rates for factoring receivables. This little trick can help you save money and obtain greater profits.

Although PO funding is a great tool, it does not work for every business. However, if you have margins of at least 20% and good paying clients, you should be able to benefit from it.

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.

Previous: Financing your big sales with purchase order financing

Next: Purchase order financing for resellers and wholesalers


	[Home] [factoring-quote] [How we help] [Articles] [Categories] [Contact Us] [About Us] [By State] [Legal Terms] [Press Releases] [Site Map] [Links]


	Factoring USA


	Factoring Canada

1 (866) 730 1922

Last change 7/30/2008