the sky's the limit With
Purchase Order Financing

If you are ready to take your business to new heights, purchase order financing offers you a ready-made solution.

Purchase order financing offers quick money to growing businesses.

use purchase order finance for business capital needs

Do you want to accept larger orders but lack the working capital financing to fulfill them? Purchase order financing pays for the manufacturing of goods and the raw materials needed to deliver more of your product to an expanded market.

Does your firm want to sell internationally but find the financing too complicated? International trade financing is a breeze when you work with a cash flow business that finances purchase orders.

What is purchase order financing?

In its simplest form, purchase order financing — sometimes called purchase order factoring or PO funding — is the financing of an order rather than the delivery of a finished product. Generally, it is a short-term transaction, lasting 60 days or less.

The company receiving a purchase order (the "client") assigns it to a third party cash flow business, which then pays the client's suppliers for raw materials or goods needed to fulfill the order. Once the order is completed, the cash flow business that provided the PO funding is reimbursed and collects a fee, and the balance of the payment is forwarded to the client.

Purchase order factoring is one of two types:

  • Finished Goods
  • Non-Finished Goods

In a finished goods transaction, the client company never handles goods. Typically, the product is shipped directly from the supplier to the end customer.

A non-finished goods transaction gives possession of raw goods or semi-finished materials to the client for completion and shipment to the end customer.

A finished goods transaction is easier to finance than non-finished goods. The client will have to demonstrate the ability to complete the processing or manufacture of the product for final shipment to its customer.

Purchase order funding works in tandem with accounts receivable factoring. When the client company generates an invoice to its customer for payment of the order, another type of cash flow business - an invoice factoring company - advances funds to the purchase order finance company to pay its lien and fee. Once the invoice is paid in full, the invoice factoring company collects a small fee for its services and forwards the balance of the funds to the client.

The Purchase Order Financing Process

The PO funding process is really quite simple. First you need to get a purchase order from your customer, secondly you need to find a reliable supplier for your products, and lastly place the order with that supplier. Your purchase order financing company handles the transaction details for you.

A complete PO funding cycle typically looks like this:

  • Your customer gives you a purchase order for your product.
  • You give your supplier your firm's purchase order to fulfill your customer's purchase order.
  • Your supplier ships materials or goods to you (non finished goods) or to your customer (finished goods).
  • Your supplier is paid by the cash flow business that provided the PO funding.
  • For a non-finished goods transaction, you finish the manufacture of your product and ship to your customer.
  • You generate an invoice for your customer's order.
  • To settle with the purchase order finance company and pay off its lien on your product, you sell the invoice to an invoice factoring company. (Some purchase order finance firms are also factoring companies)
  • The invoice factoring company advances your firm funds against this invoice, less the PO funding company's advance and fees.
  • Finally, when your customer pays the invoice, the invoice factoring company collects its factoring advance fee. All remaining funds are forwarded to you.

A common requirement in a purchase order finance transaction is a letter of credit. This is particularly true in cases involving offshore contract manufacturing. Foreign manufacturers will generally require payment in full before goods are shipped, so a PO funding company will:

  • Issue a letter of credit to guarantee payment to the foreign supplier
  • Inspect the goods prior to shipping
  • Pay the foreign supplier when required
  • Arrange for shipment to the customer (finished) or client company (non finished)

Is PO Financing For You?

Every purchase order finance transaction stands on its own.

To protect its interests, the PO funding company will evaluate Your business history, the credit worthiness of your customer, the ability of your supplier to furnish materials or produce the goods needed to fulfill the order, and whether the transaction is profitable for all parties involved. Newer companies can easily obtain PO financing, provided they can demonstrate the capability to produce their products.

PO funding is an excellent method for businesses to obtain quick money and expand operations. Use it to pay suppliers; use your existing cash for marketing, additional employees, and tools you need to grow. If your firm ...

  • Wants to finance expansion without selling equity, incurring debt or additional credit risks
  • Needs working capital financing
  • Experiences seasonal sales spikes that strain cash flow
  • Needs expertise to handle financing, particularly international trade financing
  • Can't obtain credit from vendors

...then learn as much as you can about this powerful technique. When you're ready to put it to work for your business, talk to a business financing expert. You have nothing to lose and everything to gain.

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