Why Do Purchase Order Finance Transactions Require Inspections?

Most purchase order finance companies typically require that the goods they are financing be inspected by an independent company prior to shipment. Usually, the inspection company verifies that the quality, quantity, shipment date, and other parameters meet the specifications of the purchase order.

The inspection clause is usually written into the language of the letter of credit – assuming you are using that form of payment. However, regardless of your payment method, payment is always contingent on a successful inspection.

Inspections are required because they protect the integrity of the transaction by ensuring that the goods that your supplier is providing meet the standards of the buyer. This undertaking prevents rejections and other transaction problems. The inspection is usually performed by well-known, third-party providers, such as SGS and Cotecna, who have qualified inspectors in most countries.

By the way, to learn more about PO financing, you can review a sample transaction and see how inspections fit in.

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