Purchase Order Financing Overview

Knowing the ends and outs of purchase order financing is an asset to almost any small or medium sized business owner. In the sections below you will learn just exactly what purchase order financing is, the benefits, drawbacks, who can benefit the most from it, and would be likely to qualify for it.

What is purchase order financing?

Purchase order financing is another way to get a loan for the capital you need to finance the supplies, production, and shipping of a product after you have received a purchase order from a buyer. Once you produce the finished goods and are paid, you can then pay off your invoice to the company who provided you with funding.

This is a perfect solution for small start-up businesses who have orders coming in but don't have the finances required to order supplies, pay their workers, and ship the finished goods. This would also be a great opportunity for a small to medium sized businesses who have found themselves with a sudden large customer jump or are graced with a very large order.

Who can benefit from purchase order financing?

- Purchase order financing is great for small to medium sized businesses who usually do not have the funds for large orders that could sky rocket their sales and turn their product into a household name. Image pitching your product to a major retailer, receiving an order from them, and then not being able to produce the goods needed because you are short on funds. purchase order financing could save you from this heart-breaking, and business-breaking, blow.

- A company who has received an order so large that they would need a six-digit loan. A purchase order financing company is not there to finance every single order so that a business does not have to spend any money up-front, it is merely a means for businesses to get the funds they need for an order that would otherwise be out of their reach financially.

- Only those who are reselling an already made product that they have to purchase in order to send to the buyer, such as drop shippers, or are

producing a product to sell may be eligible to receive purchase order financing.

For example, if you are selling a service, you would not qualify to receive purchase order financing. Although it may take capital you do not have to hire employees to perform the service, it would still not qualify under most company

guidelines.

What are the drawbacks of purchase order financing?

There are few drawbacks to receiving purchase order financing, however, there is one major qualification that could potentially stand in your way. When a company grants you funding, they assume they will be paid after your

customer receives the finished product and pays you. Because of this, many funding companies will check the credit of your buyer(s) to be sure that you will not get ripped off and be left without the money to pay your invoice. Purchase order financing companies are not only taking a chance on you, they are taking a chance on your customers as well. They are the ones with the real risk if the deal goes sour. Knowing that your customer is credit worthy gives the company the peace of mind to lend to you.

What to look for in a purchase order financing company

You should find a company that is right for you. These guidelines may help you better understand what type of company you should apply with:

- Find out what their minimum and maximum funding guidelines are to ensure that they meet your financial need. If a company only funds loans that are in excess of what you are looking for or has restrictions that are less than what you need then you are best moving on to another company.

- Find out what other eligibility requirements they have to

ensure that you do qualify under their guidelines before you waste any time applying for their loan.

- Find out what length of time you have to repay the loan and

check to see if it meets with you production and billing schedules to ensure that you will have the funds in time.

- Once you have found a company that works for you, make sure

that they have a fee or interest rate that your company can both afford and be comfortable with.

In the world of loans and financing, purchase order financing may be a small business's best ally. They will usually have repayment terms that allow time for production of a product and it is the fastest way to receive financing without losing any investment in your business. Also, since they will check into the credit worthiness of your buyers, they may save you from producing a product for a deadbeat buyer. All in all, purchase order financing is a way to finance a large order that may get your product into the hands of a top notch retailer.

David Springer is a consultant for Sovereign Funding Group. Sovereign Funding Group is an experienced, reputable company that offers convenient, no-risk services to help you with the selling of your deferred payments and business financing including purchase order financing.

Who's Financing Inventory and Using Purchase Order Finance (P O Finance)? Your Competitors!

It's time. We're talking about purchase order finance in Canada, how P O finance works, and how financing inventory and contracts under those purchase orders really works in Canada. And yes, as we said, its time... to get creative with your financing challenges, and we'll demonstrate how.

And as a starter, being second never really counts, so Canadian business needs to be aware that your competitors are utilizing creative financing and inventory options for the growth and sales and profits, so why shouldn't your firm?

Canadian business owners and financial managers know that you can have all the new orders and contracts in the world, but if you can't finance them properly then you're generally fighting a losing battle to your competitors.

The reason purchase order financing is rising in popularity generally stems from the fact that traditional financing via Canadian banks for inventory and purchase orders is exceptionally, in our opinion, difficult to finance. Where the banks say no is where purchase order financing begins!

It's important for us to clarify to clients that P O finance is a general concept that might in fact include the financing of the order or contract, the inventory that might be required to fulfill the contract, and the receivable that is generated out of that sale. So it's clearly an all encompassing strategy.

The additional beauty of P O finance is simply that it gets creative, unlike many traditional types of financing that are routine and formulaic.

It's all about sitting down with your P O financing partner and discussing how unique your particular needs are. Typically when we sit down with clients this type of financing revolves around the requirements of the supplier, as well as your firm's customer, and how both of these requirements can be met with timelines and financial guidelines that make sense for all parties.

The key elements of a successful P O finance transaction are a solid non cancelable order, a qualified customer from a credit worth perspective, and specific identification around who pays who and when. It's as simple as that.

So how does all this work, asks our clients.Lets keep it simple so we can clearly demonstrate the power of this type of financing. Your firm receives an order. The P O financing firm pays your supplier via a cash or letter of credit - with your firm then receiving the goods and fulfilling the order and contract. The P O finance firm takes title to the rights in the purchase order, the inventory they have purchased on your behalf, and the receivable that is generated out of the sale. It's as simple as that. When you customer pays per the terms of your contract with them the transaction is closed and the purchase order finance firm is paid in full, less their financing charge which is typically in the 2.5-3% per month range in Canada.

In certain cases financing inventory can be arranged purely on a separate basis, but as we have noted, the total sale cycle often relies on the order, the inventory and the receivable being collateralized to make this financing work.

Speak to a credible, trusted and experienced Canadian business financing advisor as to how this type of financing can benefit your firm.

Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com. Originating business financing for Canadian companies, specializing in working capital, cash flow, asset based financing. In business 6 years - has completed in excess of 50 Million $$ of financing for Canadian corporations.Info re: Canadian business financing & contact details: http://www.7parkavenuefinancial.com/p_o_purchase_order_finance_financing_inventory.html