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Article: What is Purchase Order Financing?

Purchase order financing is a product that helps wholesalers with large purchase orders. It allows you to fulfill large orders by providing you with funds to pay for related supplier expenses.

Do you have a large purchase order?

Getting a large purchase order is certainly one of the best things that can happen to a growing distributor or wholesaler. A large order usually indicates that things are going well, and it can be used as a gateway to new opportunities.

However, a large order can also turn into a nightmare if your company does not have the financial resources to pay suppliers. If you fail at this order, the client will likely go to a competitor and you will lose the sale forever

Large orders can create cash flow problems

Fulfilling large orders is expensive, and few small companies have the necessary resources. Suppliers often demand immediate – or advance – payment before starting production. Furthermore, they also demand full compensation before shipping the goods.

On the other hand, most large commercial clients demand net 30 – 60 day terms as a condition of doing business. And your company is caught in the middle – having to prepay suppliers and waiting up to two months for customer payments. Unless you have sufficient resources or a way to finance the transaction, you won’t be able to fulfill the order.

The solution

You can solve this problem and make the sale by using purchase order (PO) financing. PO financing provides funding to pay suppliers, which allows you to deliver goods to customers.

Transactions follow a simple structure. Most are implemented as follows:

  1. You get a PO from your client
  2. You place an order with your supplier to purchase goods
  3. We pay your supplier – either by bank wire or by letter of credit
  4. Your supplier ships the goods
  5. Your client receives the goods and accepts them
  6. Your client pays their invoice and settles the transaction

If you need additional details, please read “How does purchase order financing work?”

Advantages

PO financing has a number of advantages that can help your company, including:

  • The size of the line is flexible and is determined by your sales
  • The solution is available to small companies
  • The program is quick to set up

Costs

Purchase order financing rates are set by the dollar amount of the transaction, the general risk, and the length of time that the funds are used. For an instant quote, please fill out this form or call us toll-free at (877) 300 3258.

Qualification requirements

To qualify for PO financing, your company should:

  • Have a PO from a commercial or government client
  • Have a supplier with a good track record
  • Have profit margins of 25% or higher
  • Resell third-party goods or use a third-party manufacturing company

Deployment

PO financing can be deployed rapidly. Setting up an initial transaction can take one to two weeks because of the due diligence process. Subsequent transactions can usually be funded in a matter of days.

Return to the purchase order financing resource center.