One of the biggest challenges for new and growing importers, resellers and wholesalers is getting a stream of orders from great clients and not being able to fulfill them because they lack the capital to do so. It is ironic, but true.
Going to a bank for
business financing will seldom help. Why? Well, banks are happy to give you
business loans if you have lots of collateral. However, banks don’t consider purchase orders to be collateral. This puts you, the wholesaler, in a bind. You have the order but you can’t get the money.
Fortunately, there is a solution that is better than a
business loan. And it is tailored specifically to importers and wholesalers. It is called purchase order financing.
What is purchase order financing? It’s a tool that provides you the necessary financing to pay your suppliers using the purchase order as collateral. It enables you to deliver the goods, close the sale and book the revenue. When used correctly it can help owners grow their companies exponentially.
Although po financing is a great tool, it only works from companies that buy goods from other parties (or import them) and then resell them. It also works for companies that use 3rd party manufacturing partners. Unfortunately, purchase order financing does not work for companies that do their own manufacturing.
So, how does purchase order finance work?
1. You get a confirmed purchase order from your client
2. The purchase order finance company pays your supplier
3. Your supplier ships the products, which are delivered to your customer
4. Once your customer pays, the transaction is settled
As you can see, purchase order funding is fairly straight forward to use and works well with most companies. It is also fairly easy to obtain. The main requirements are that you have a solid purchase order from a reliable customer and a well run business. It is also common to combine purchase order financing with
accounts receivable factoring (also known as
factoring). When used correctly, the combination of these two financing tools can help reduce the overall transaction costs and enhance your profitability
On average, purchase order financing works best in situations where the client has a profit margin of at least 25%. However, most purchase order finance companies can work with lower profit margins if the transaction is large or has exceptionally good customers.
About Invoice Factoring Group / Commercial Capital LLC
Looking at
purchase order financing? We can provide you a competitive
purchase order funding and
business financing quote. For more information, call (877) 300 3258.
