Purchase Order Finance.
Purchase Order Finance.
Purchase Order Financing
Purchase order financing is for companies that have purchase orders from credit worthy customers but do not have enough working capital to deliver the order. Purchase order funding companies will often cover 100% of the cost of goods, however, like to see a gross margin of 25% or better.
Purchase order funding companies will usually pay suppliers directly through a letter of credit or wire transfer. International orders are usually paid by letter of credit and require an inspection at the port of origin and sometimes at the port of destination as well. Some purchase order financing companies will take title to the goods while others just provide the funding.
Purchase order funding companies prefer for the goods to be drop shipped to the customer. They also want to be able to track the goods on the water and while they are being delivered to the customer. Purchase order funding companies will also want to have ocean freight and land freight insurance in place with the purchase order funding company listed as the loss beneficiary. These lenders treat the goods as if they were their own as they have paid for goods and need to see them delivered to recoup their advance.
While some Purchase order financing companies will also carry the credit risk of the receivable, most will require the client to have a factoring facility in place so that they can be repaid once the goods are delivered. Funders will often suggest a factor that they have a working tripartite agreement with. The tripartite agreement spells out the rights to the collateral and responsibilities of each finance company. It is better if the two finance companies have experience working together to avoid unforeseen issues. Some companies do both accounts receivable and purchase order finance which is preferable.
Purchase order financing is mainly offered by private finance companies and a limited number of banks. Purchase order finance companies typically take 4% to 5% of the gross margin of the order, however, can be less expensive for volume commitments.
Purchase order financing is an excellent to tool to help businesses grow and is a good alternative to selling equity in the business.
Call us now at 855-424-2958 and get on the road to success! Or fax us at (855) 450-0885.
Customized Financing Options
Asset Based Lending
Revolving lines of credit up to $20,000,000
Accounts Receivable Factoring
No minimums, up to $20,000,000
Secondary lines of credit for ABL or Factoring
Equipment & inventory facilities
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