It’s not unusual to have prospects that already have business financing who want to add purchase order financing to their financing mix. Although possible, combining po financing with other financing tools (with the exception of factoring) can be very tricky. This is because most business loans and lines of credit file a lien claiming accounts receivable as collateral. Now, in a purchase order funding transaction, the collateral is the invoice that is generated from completing the order.  However,  if you have other financing, the invoice is already collateral for your prior financing. Therein lies the problem.

Is there a solution? Sometimes.

For example, purchase order financing works well with factoring because most factoring companies are willing to pay off the po financing company once an invoice is generated. This is usually done by negotiating an inter-creditor agreement. It may be possible to have similar arrangements where po financing is used to fulfill an order and then the po financing company is taken out using the proceeds of a loan or line of credit. However, these arrangements are very unusual. It’s best to assume that purchase order financing can only be used in conjunction with invoice factoring.

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We offer factoring across the USA including factoring in Maine and invoice factoring in Maryland.

Selling goods to the US government is very competitive but can be very profitable for those that succeed. Given the level of competition, companies are forced to restrict their profit margins in order to be able win contracts. Unless you sell a very specialized product, selling to the government usually implies selling large volumes of goods at low margins. However, selling to the government can be very good business. The government buys large quantities of items every day and it’s know for paying their invoices reliably.

The catch, at least for small companies, is that  making large sales to the government requires a lot capital or a substantial business financing plan. You need the funds to pay suppliers (unless they give you credit) so that you can fulfill large orders. Invoice factoring won’t help you at this stage of the game unless you have invoices to finance. The only other alternative is to use purchase order financing.

As it name implies, purchase order funding provides you with resources to finance your purchase orders. It provides funds to pay suppliers, so that you can deliver the goods and fulfill your orders successfully. The transaction can be settled at two different points. You can either convert the transaction to a factoring transaction at time of invoicing or you can wait until the government pays and settle it then.

The transaction flow would work as follows:

1. Obtain a purchase order financing account with a financial services provider
2. Clear the proposed transaction with your provider
3. Get supplier pricing
4. Submit bid to government
5. If you win, the po financing company pays your supplier
6. Your supplier ships the goods to the government
7. You invoice the government
8. Optional - the invoice is factored
9. The government pays for the goods
10. Transaction  is settled

As you can see, the process is fairly simple. Ideally purchase order financing works with companies that have gross profit margins of at least 25% – but many can work with lower margins if the transaction warrants it. Qualifying for po funding is easier than qualifying for a conventional business loan – however – each funding company has their own specific criteria. Generally, your company must be free of legal problems, be properly organized, have no encumbrances and have good growth prospects.

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We provide services in all states including factoring in Iowa and invoice factoring in Kansas

Suppose you have a company that re-sells office products that just got a large purchase order from an important customer. Now, the reseller basically buys the products from their supplier and re-sells them at a markup to their customer. Although this appears to be a routine transaction it can easily run into trouble if the reseller gets a large order that exceeds it’s current funding and cannot afford to buy the products from their supplier. Without business financing, they may be forced to decline the order. As you can imagine, factoring alone would not help this transaction because factoring requires an invoice for delivered product. The solution in this case is to use purchase order financing.

As it’s name implies, purchase order financing is used by resellers that need to finance their purchase orders. It handles the supplier payment, enabling the client to complete the order to their customer. The transaction is settled once the end customer pays for the goods (or by using invoice factoring at time of product delivery).

Some of the general requirements to qualify for purchase order funding are:

1. Gross margins must be at least 20%
2. Customer must do at least $50,000 in monthly sales
3. Customer must be a re-seller or use a 3rd party manufacturing company

Although there are other requirements to qualify, these three requirements are the most important ones. One of the advantages of po financing over other business financing products is that easier to obtain. Usually, your company needs to be free of legal problems and liens , have solid suppliers and have solid clients.

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We factor invoices in the US and Canada including factoring in Illinois and factoring in Indiana.