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.
