Purchase order (PO) financing helps wholesalers that have been awarded a large order and need funds to pay their supplier expenses. It provides funds to pay suppliers so your company can fulfill larger orders and grow its revenue.
PO financing has simple qualification requirements and is more flexible than bank financing. Most lines can be set up quickly to help you handle growing orders. Services are available in the USA and Canada.
We offers purchase order financing at competitive rates. Fill out this form for an instant quote.
Is this solution right for you?
Purchase order financing is a specialized solution tailored to help product distributors and resellers grow their companies. Consider this option if your company meets this criteria:
- Has sold this product before
- Is a wholesaler / reseller
- Handles sales with high gross margins (min. 20%)
- Sells to commercial / government clients
- Handles high-value orders (min. $100,000)
The bottom line
The most important benefit from a purchase order financing line is that your company will be able to fulfill larger orders. Additionally, this solution:
- Is available to new companies/start-ups
- Grows as needed to handle large orders
- Is transactional (use as needed)
- Can be set up quickly
- Is easier to get than bank financing
How does purchase order financing work?
PO financing covers the cost of paying your supplier. This enables you to deliver the product, book the revenue, and grow your business.
Most transactions use the following five steps:
- Finance company issues an L/C to your supplier
- Supplier manufactures and delivers products
- Your customer receives products
- Your customer pays the invoice (net-30 to net-60)
- Transaction settles
There are two ways to settle a transaction. The simplest way is for the purchase order finance company to settle directly once your customer pays the invoice. Alternatively, transactions can settle through a factoring line. This method may lower transaction costs and improve cash flow in some cases.
The purchase order finance company pays your suppliers directly, typically with a Letter of Credit (LC) or similar instrument. This helps reduce the transaction’s risk. The supplier has a guaranteed payment as long as they deliver the product according to the agreed specifications and timeline.
How much does it cost?
The PO financing rate is determined by the transaction’s risk profile. Finance companies determine the risk profile by evaluating the credit quality of your clients, the supplier’s reputation, and other criteria.
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How to evaluate PO financing companies
Every finance company is different. Some specialize in purchase order financing and can handle a wide range of transactions. In contrast, other companies offer it only to select clients.
Evaluate prospective companies carefully to ensure you partner with a company best suited to finance your transaction. The following five questions should help you with in this process.
1. How long have they been in business?
You are usually better off working with a purchase order financing company that has been in business for a few years. This usually indicates they have industry experience and know-how to manage their portfolio.
2. What is their main line of business?
Many factoring companies offer purchase order financing as an “accommodation” to existing customers. However, few companies specialize in PO financing and are familiar with the nuances of this type of financing.
You will get better results if you work with a company that specializes in purchase order financing. They have the technical knowledge to handle complex transactions.
3. What supplier payment methods do you support?
This support varies by company and transaction. Some purchase finance companies offer only letters of credit. Most also offer “cash against documents” and similar methods.
4. How does the due diligence process work?
Most purchase order funding companies follow a similar due diligence process. However, each company has its own procedures. Ensure you are comfortable with the process before signing on as a client.
5. Are there any due diligence fees?
Most purchase order finance companies charge a due diligence fee. This fee helps defray the cost of reviewing the transaction, filing the proper documents, and setting up the account. Inquire about these charges before signing on with the finance company.
Useful reading
We have been in business for over 20 years, helping wholesalers and distributors grow their companies. During this time, we have built a comprehensive resource library. Here are some useful articles: