Financing for Resellers and Distributors

For many resellers, distributors and importers, managing cash flow is a very important but delicate task. Unless you have a long established relationship with your supplier, they will likely ask you to prepay for goods – or pay upon shipment. On the other hand, your commercial clients will often demand to pay your invoices in net 30 to net 60 days. So, on average, it can take you one to two months to recover your initial outlay to suppliers.

The problem is that if you want to be successful with this business model, you will need a lot of capital to cover supplier payments. Without it, you won’t be able to handle growing orders and will be left unable to take on new clients. But how you get capital if you own a small company and can’t qualify for bank financing?

Financing your purchase orders

One way to solve this problem is to use a business financing tool known as purchase order funding. It enables you to finance your PO’s from credit worthy clients. It helps you pay for the supplier costs associated with a purchase order, enabling you to close and deliver larder orders.

What are the benefits of this solution?

This program has a number of benefits that are designed to help small business owners. The most important one is that it can be used to finance large orders, as long as they meet the funding criteria. The size of the orders that can be financed is not determined by your collateral. Rather, it’s determined by the credit quality of your order, the reliability of your supplier and your ability to execute it.

Also, the line is flexible and can increase as your business grows. This can be done without going through substantial underwriting. And lastly, the line can be deployed quickly. This makes it an ideal tool for companies that need an immediate solution.

How does a transaction work?

The transaction model is very simple. Once you have your contracts and order in place, you submit them to the finance company for review. If they are approved, the finance company pays your supplier for the order. This enables your supplier to ship the goods and fulfil the order. The transaction settles either by financing your invoice, or once your client pays in full.

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

How are suppliers paid?

Unless your supplier is a large company that is based in Canada or the USA, your supplier will be paid using a letter of credit. This helps ensure that the goods will be delivered as specified, and guarantees a payment to your supplier. Letters will usually have an inspection clause where a third part company, such as SGS inspections, inspects the goods and certifies them.

Will any transaction qualify?

To qualify, your company should resell finished goods. This means that you should buy your products from your supplier and resell it without any additional modifications. Also, the gross margins for the transaction should be higher than 20%.

Lowering transaction costs

One of the reasons that this solution can only work with high gross margins transactions is that this type of financing is expansive, especially when compared to bank financing. However, one way to lower you transaction costs is to combine it with invoice factoring. This is done once the product is delivered and invoiced for. You can use the factoring proceeds to close the po funding line and the transaction proceeds as a factoring transaction from that point forward.

Get more information

Are you looking for purchase order financing? We are a leading finance company in Canada and can provide you with a competitive quote. For information, get an online quote or call (877) 300 3258.