Factoring Blog

Use PO Funding and Take Your Company To the Next Level

Most small product re-sellers remain as small companies for one simple reason. They don’t have the needed working capital to take on large purchase orders. And without meaningful vendor credit, they are stuck, only able to take and service small orders.

What’s worse, when a larger order comes in, they face a serious dilemma. They can try to get cash in advance from their buyer – but large corporate buyers seldom pay in advance. They can decline the order, losing the client to a competitor. Or, they can take the order and risk financial problems and failure. Obviously, these are all bad options. And thus, you remain a small company unable to break into the next level.

Can bank financing work?

One simple way to solve this problem is to get bank financing – such as a loan or line of credit. However, getting either of those products is very difficult. Most banks, especially the larger institutions that dominate the financing landscape, work mostly with large companies. They like large companies because  they will buy services in addition to getting funded, increasing revenues. And, their underwriting criteria has gotten stricter. They will only fund companies that have perfect financial statements and substantial assets that can be used as collateral. Because of this, small distributors and re-sellers are unlikely to qualify for bank funding.

Finance our orders – leverage your buyers and your vendors

One way to solve this problem, and take larger orders, is to finance your purchase orders. You work with an intermediary funding company, that pays your vendors. This enables them to produce and ship the goods. The transaction concludes once your buyers receive the goods, and pay for them on their usual terms.

The main collateral for the transaction is the credit quality of your buyers. Their ability to pay for your goods is what secures the transaction. Additionally, you need to work with reliable vendors who can produce and ship quality products. Lastly, you must run a profitable business and have the experience to execute the order and fulfill it. One thing that is not required is substantial hard collateral – other than the order.

Benefits

The most important benefits of financing orders is that it can help you take your company to the next level of growth. It enables you to take on large orders that in the past you would have not been able to afford. By providing you with access to capital, you are free to pursue larger opportunities and focus on growing – rather than just getting by. Also, this solution is easier to get than conventional financing and a line can be set up in a few days.

Who can work with this solution?

Financing purchase orders  is not for everyone. While the line is very flexible and can grow easily, it can only work for companies that can meet some very specific requirements. They include:

  1. Company must re-sell finished goods. Company cannot manufacture goods directly
  2. The order must not involve installation or product changes
  3. You suppliers must be willing to accept a letter of credit
  4. Your sale must have high gross margins – 20% or more

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