This article answers the most common questions prospective clients ask about purchase order financing. We encourage you to read it carefully before submitting information.
Purchase order funding can only be used to finance transactions in which your company is re-selling a completed product (e.g., finished goods) to another company or government agency. Your company must buy the finished goods from a supplier, distributor, or a third-party manufacturing company.
Note: Transactions where the product requires more than one supplier tend to be challenging to finance. These transactions will be evaluated on a case-by-case basis. These include transactions where raw materials are provided by one supplier and shipped to a second supplier for finishing.
Purchase order financing cannot be used to finance manufacturing companies, service contracts, support contracts, consulting engagements, buildouts, or construction projects.
Note: manufacturing companies should consider using supplier financing, which provides many of the benefits of PO financing.
We can finance only purchase orders that sell products. Unfortunately, we are unable to finance orders that include a service component. Examples of services include installation, assembly, configuration, consulting, etc.
The smallest transaction we can finance is $100,000. We don’t have defined maximum transaction limits, and we can finance transactions in the millions of dollars, provided they are well structured.
All overseas suppliers are paid either through a letter of credit or cash against shipping documents. We can provide a letter of credit before they begin working on your order. These methods ensure payment to your supplier, provided they shipped their product to you.
We can pay only via a letter of credit or cash against documents. Both ensure payment to the supplier and guarantee the delivery of the goods that meet your purchase order’s specifications.
A cash prepayment to your supplier exposes your company to a financial double jeopardy. This is best explained with an example. Let’s say the finance company prepays your supplier, but the supplier does not deliver the goods. This leaves you without the product, liable to your client, and liable to the finance company. Obviously, you want to avoid this situation.
There are two possible reasons a supplier would ask you for a prepayment. The first reason is that the supplier is unfamiliar with your company and is unwilling to provide you with credit terms. Purchase order financing is designed to help you with this situation. We offer to pay your supplier with a letter of credit. Letters of credit provide your supplier with a guaranteed form of payment as long as they deliver according to your purchase order.
The second reason a supplier may ask for a prepayment is that they are not doing well financially. In other words, they don’t have the resources to fulfill your order unless you pay them first. By asking you to prepay them, your supplier is asking you to take the risk and finance them. We view these situations as very risky and are unable to provide financing.
This depends on the payment terms with your suppliers. If they give you net-30 to net-60 day terms after shipping, we can usually pay by wire transfer per your regular terms. If your supplier requires an upfront payment, we can pay them using a letter of credit.
We may consider making a prepayment only to suppliers that meet all these conditions:
a) Large company (i.e., Fortune 500)
b) Excellent track record
c) Excellent commercial credit
d) Demonstrated financial stability
Please note that most transactions are done using a letter of credit.
Generally, transactions with a single supplier for the order are the simplest to execute. Transactions that include multiple suppliers have to be examined on an individual basis to determine if we can finance them.
We can finance companies that are relatively new, as long as they have sold the product before and can show a few successful transactions. We ask for a track record with a few successful transactions because it demonstrates that all the major supply chain and logistics issues have been ironed out.
We are unable to finance transactions that involve products with no track record. However, we can consider transactions of products that have had a few initial sales transactions. This is similar to the situation in question #10
There is a due diligence cost to set up an initial account. This cost varies and is determined by the size and complexity of your transaction.
Most transactions require that the goods be inspected by a third-party company, such as SGS. This ensures that the goods meet the requirements outlined in your purchase order. This reduces the risk of the transaction for all parties. Your company usually covers the cost of the inspection. Note that inspection requirements are determined for each transaction individually.
Setting up a financing line takes a couple of weeks, provided we receive all the information that we ask for in a timely manner. Once the account has been established, subsequent transactions can be funded much faster. Please keep in mind that some items in the setup process are beyond our control and may affect the setup timeline.