One of the biggest obstacles to growth for successful resellers and importers is the lack of working capital. Most small business owners start companies by investing their own money. In most cases, the initial contribution is sufficient to start the company and take in a few orders.
But soon, the company starts growing. Since small companies seldom have the money to fulfill larger orders, a “catch-22” dilemma arises: they have the sales skills to promote their their business, but they don’t have the resources necessary to grow their business.
If you have collateral – consider bank financing
A bank may be able to provide financing if you have personal assets, such as real estate and other valuables, or if your business has hard assets and growing cash flows.
But if you have no collateral, or if your business is your biggest (and only) asset, you are likely out of luck. Most financial institutions have stringent requirements for business financing. Unless you have collateral and a track record of success, they are unlikely to lend you money or offer you a line of credit.
How to finance purchase orders
Many resellers that don’t have conventional collateral are financing their purchase orders instead of using traditional funding. Purchase order financing allows companies to use their purchase orders as collateral for transactions. It’s a form of self-liquidating transaction that provides the financing needed to pay suppliers and complete the order.
To qualify for this type of financing, you must have orders that meet the following criteria:
- You must sell finished goods – without modifications.
- You must buy the goods from reputable vendors.
- Your vendor must have a good track record.
- Your purchase order must be from a creditworthy commercial client or government agency.
- Profit margins must be close to 30%.
If your transaction meets these criteria, purchase order financing may help you. The most important benefit of using this solution is that it can be used to grow your company quickly and efficiently. Learn more about purchase order financing here.
Pays supplier expenses
Keep in mind that purchase order financing is used exclusively for vendor financing. In other words, the finance company can provide funding that covers only your direct supplier expenses for the purchase orders (freight costs can sometimes be covered, though this varies).
Also, the finance company pays your supplier directly. Most firms can pay your supplier in one of three ways:
- Letter of credit
- Cash against shipping documents
- Prepayment by wire transfer
Obviously, most vendors prefer prepayment by wire transfer (option #3). This option is available if your supplier is a large, well-established, US-based company. Otherwise, other methods must be used. Note that the only way to pay foreign suppliers is with a letter of credit (option #1), as it is the only way to ensure the financial reliability of the transaction.
Unlike lending institutions, who base most of their decisions on your collateral and financial statements, purchase order financing companies look at things differently. They evaluate the creditworthiness of your buyer, the track record of your supplier, your gross margins, and your ability to execute the order.
The size of your funding facility is determined solely by these variables. And, more importantly, because you have full control over these variables, you have full control of your growth strategy.
The po financing company can provide a solid base that you can use to grow your company. They help you evaluate the creditworthiness of clients and the strength of your suppliers – making the funding company a key resource that you can leverage to take your company to the next level.
Get more information
We are a leading purchase order financing company and can provide you with a competitive proposal. For more information, get an online quote or call (877) 300 3258.