Purchase Order Financing Qualification Requirements

Qualifying for purchase order (PO) financing is easier than qualifying for most conventional business financing solutions. However, to qualify for funding, your company must meet some requirements. Through a process called “due diligence,” purchase order finance companies evaluate your transaction to determine if it is a good candidate for funding.

This article discusses what PO finance companies are looking for when they evaluate a transaction and helps you determine if your transaction is likely to qualify. Most finance companies assess five areas when evaluating a transaction:

1. Does the transaction qualify?

To qualify for purchase order financing, a transaction must be a straight resale transaction. In other words, your company must buy the goods from a supplier and sell them to the customer without any modifications, except for packaging and labeling. Also, the transaction must:

  • Have a minimum value of $50,000
  • Have a gross profit margin of at least 20% (although 30% is preferable)
  • Be non-cancelable
  • Not be for a guaranteed/consignment sale

2. Do your customers qualify?

A critical component of the transaction is the creditworthiness of your customers. The finance company funds the transaction based on your customers’ ability to pay for the order in a timely manner. As a result, purchase order finance companies perform detailed reviews of the creditworthiness of your customers.

3. Does your supplier qualify?

The funding company also reviews your suppliers to ensure that they have the reputation and capabilities to deliver the quality and quantity of the product that you’re asking for. However, you should perform your own supplier due diligence before contacting a PO finance company. If your supplier has financial problems or requires a prepayment to fund production, the supplier is not likely to qualify.

4. Does your company qualify?

As part of their due diligence, financing companies also evaluate your company. They review your company’s financial statements and other information to ensure that your company actually has the ability to fulfill the order if it receives funding. They also review public records to ensure that no legal or tax problems could derail the transaction. PO financing can be used by start-up companies, provided that the owners have contributed some capital to the corporation.

5. Do the company owners qualify?

Lastly, the PO finance company examines the background and reputation of the company owners. After all, a small company is only as proficient and effective as its owners, so this assessment is critical. The owners should have industry experience and be free of legal and other problems that could encumber the company.

These five topics cover the majority of the requirements to qualify for purchase order funding. Depending on the transaction or situation, funding companies may request additional information. Nevertheless, this article should help you identify whether your transaction is a good candidate for PO financing.

Need more information?

We are a leading provider of purchase order finance. To see if you qualify, please get an online quote or call us at (877) 300 3258.