Purchase order financing is an excellent financing tool that can be used by smaller businesses that have received a large purchase order that they can’t fulfill with their existing capital. It provides the funds to pay a company’s suppliers, enabling the company to fulfill the order and thus not lose a sale.
What Businesses Can Use Purchase Order Financing?
The qualifications to use purchase order financing are these:
The company must resell and distribute products. Purchase order financing can’t be used by manufacturers (they can use similar supplier financing,) or by companies that provide services.
The transaction must qualify, including being a product for resale and not manufactured, having a minimum order value of $100,000, being a non-cancelable order, not being the company’s first transaction with the product, having a gross margin of 20% or more, and not be for a consignment sale.
The supplier must qualify by having a solid track record of product delivery and be in good financial condition. The supplier should also accept letters of credit.
The customer must be creditworthy.
Your business will also be examined by the financing company to determine your ability to fulfill the order. As well your financial statements will be examined.
Purchase Order Financing: The Pros
Allows a company to accept large orders and thus continue to grow.
Can be available to new companies as long as all qualifications are met.
Cover up to 100% of the supplier’s expenses.
A financing line can be secured which will grow with your business.
Once a full application is received by the lender, funding can be provided relatively quickly.
Purchase Order Financing: The Cons
Applies only to high-value, high-margin transactions.
Only covers direct supplier expenses, not things like rent, payroll, etc.
Only applies to resellers and distributors.
Seek Expert Financing Assistance
Contact Capital Finance Partners to secure the funding you need. We offer a comprehensive portfolio of loan products to operate and grow your business.