Benefits of Purchase Order Financing

If you are a relatively new product reseller with a limited history and minimal track record, you often encounter vendors who are unwilling to offer you net payment terms. Suppliers often insist that you pay ahead of time or right before the goods are shipped. If your company has the money for that scenario, then you have nothing to worry about. But if you just landed a large purchase order and can’t afford to pay your supplier, then you have a problem – a big problem. As you know, if you get a large order, you have to be able to deliver.

Fortunately, there is a financial solution designed to solve this specific problem. It’s called purchase order funding. Purchase order financing covers the supplier costs associated with large purchase orders. This solution allows you to take on orders that exceed your current capital reserves and enables you to execute them and book the sale.

You can use this solution if the following apply to your purchase order:

  1. You have a confirmed purchase order from a commercially creditworthy customer
  2. You are reselling and not manufacturing the goods
  3. The order is not for guaranteed or consignment goods
  4. Your supplier has a good track record
  5. The order has a gross margin of 25% or above

For more information, please read “How does purchase order financing work?

Benefit #1: It’s available to start-ups and new companies

Most conventional financing solutions, such as loans and lines of credit, are only available to established companies that can provide the lending institution with three years’ worth of audited financial statements, show growing cash flows, and have ample collateral. Unlike conventional financing options, we can work with new and growing companies, provided they can demonstrate experience and traction with the type transactions they are trying to fund.

Benefit #2: It can cover up to 100% of your supplier costs

The solution can cover up to 100% of your supplier costs, as long as your gross margin is 25% or more (this varies). Otherwise, your company will need to contribute some funds to the transaction. To get an idea of the maximum amount we can contribute to your supplier costs, a rule of thumb is to multiply your sale price (the amount the buyer is paying you) by .75 (75%).

For example, if you are buying goods for $70,000 and selling them for $100,000, we should be able to pay your supplier in full because your supplier costs ($70,000 = $100,000 x .70) are less  than the maximum amount that we can pay ($100,000 x .75 = $75,000). Note that the 75% varies based on transaction parameters.

Benefit #3: The line grows with your business

One important advantage of this solution is that the size of the line is determined by the strength of the purchase order, the credit quality of your customer, the track record of your supplier, your profitability, and your ability to execute the order.

You have control over many of these variables, and, therefore, over the size of your line. And the line grows with your business, as long as you meet the funding criteria.

Benefit #4: The line can be set up quickly

A purchase order financing facility can be set up quickly, provided that you give us a full application package. Generally the first transaction can be funded in one to two weeks. Subsequent transactions can be funded faster. This benefit makes purchase order financing an ideal solution for companies that need quick funding.

Get more information

We are a leading purchase order financing company and cam provide you with competitive terms. For more information, get an online quote or call us at (877) 300 3258.