Here is a common situation.  A small importer gets a large purchase order from a prized client, such as a big box retailer. To fulfill the transaction,  they will have to buy the goods from their foreign supplier, who will ask for a pre-payment. The supplier will then manufacture and deliver the goods to the end customer. And once received, the customer will take anywhere between 30 to 60 days to pay for them. As you can see, these types of transactions have very demanding cash flows, leaving the importer with a serious financial dilemma: if the order is too big/expensive they will risk losing the order and the client.

What can they do?

Financing this type of transaction is very difficult because most financial institutions will not consider purchase orders as valuable collateral. However, there is one financing solution that has been gaining traction in recent years. It’s purchase order financing. Purchase order funding is designed to finance importing transactions that meet the following criteria:

1. The transaction must be a strict product resale (you can’t  manufacture the goods directly)
2. The supplier must accept payment by letter of credit
3. Both your supplier and your customer must have good commercial credit and good reputation
4. Gross profit margins must be of at least 30%

The transaction is structured by using an intermediary finance company that pays your supplier, usually with a letter of credit, enabling them to manufacture and deliver the goods to your customer. The transaction is then settled once your customer receives the goods and pays for them in full.

It’s a common practice to use factoring in combination with purchase order financing. What usually happens is that the transaction starts as a purchase order funding transaction and then becomes a factoring transaction once the goods are delivered to the customer and invoiced for. Generally, factoring is less expensive than purchase order financing, so combining both products usually lowers total transaction costs.

Qualifying for purchase order funding is generally easier than qualifying for most conventional business financing products. There are a few requirements though. First and foremost, your customer must have excellent commercial credit. This is critical because the finance company is funding this transaction based on your customers ability to pay. Aside from that, your company must also:

• Have accounts receivable that are not encumbered by liens
• Have experience in the type of transactions that require funding
• Only sell finished goods from third party suppliers
• Be free of legal and tax issues
• Have owners that have a good reputation and industry experience

One of the biggest benefits of using purchase order financing is that it can enable small and growing companies to fulfill purchase orders that exceed their current levels of capitalization. This makes purchase order funding an ideal solution for commercial importing businesses that have growing purchase orders.

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.

Getting a large order from your best customer can be one of the best things that happen to your business, if you have the financial resources to deliver it. If you don’t, getting a large order can be a true nightmare. Unless you find a way to deliver it, you risk losing both the order and your customer.

So, if your company needs money, your best bet is to go to the bank, right? Well, not really. At least, not unless your company has a long track record of profitable operations and can show audited financial statements. But what happens if your company is a startup or just not well capitalized?

If you resell goods as a reseller or wholesaler, the solution may be to use purchase order financing.

Purchase order funding works by providing the financing to deliver on the sale, while taking the purchase order as the actual collateral. Now, that is something that you won’t find at you local bank. And since the purchase order is the “collateral”, the biggest requirement to qualify is that you get purchase orders from reputable clients or government agencies.

Here is how a transaction works:

1. You get a purchase order from a large customer
2. The po financing company pays your suppliers, usually via a letter of credit
3. Your suppliers deliver the goods and you complete the sale
4. The transaction is settled once your customer pays for the goods

Since purchase order funding allows you to take large orders, when used properly, it can be a tool that fuels explosive growth.  However, purchase order financing does not work for every business. To benefit from purchase order funding:

1. Your business must sell goods – not services
2. You must be a reseller or wholesaler
3. Your profit margins must be of at least 15%

It is quite common combine purchase order financing with some type of invoice financing, such as invoice factoring.  The advantage of factoring invoices to refinance your po financing transaction is that it may help reduce your overall transaction cost, increasing your profitability.

One of the biggest challenges for new and growing importers, resellers and wholesalers is getting a stream of orders from great clients and not being able to fulfill them because they lack the capital to do so. It is ironic, but true.

Going to a bank for business financing will seldom help. Why? Well, banks are happy to give you business loans if you have lots of collateral. However, banks don’t consider purchase orders to be collateral. This puts you, the wholesaler, in a bind. You have the order but you can’t get the money.

Fortunately, there is a solution that is better than a business loan. And it is tailored specifically to importers and wholesalers. It is called purchase order financing.

What is purchase order financing? It’s a tool that provides you the necessary financing to pay your suppliers using the purchase order as collateral. It enables you to deliver the goods, close the sale and book the revenue. When used correctly it can help owners grow their companies exponentially.

Although po financing is a great tool, it only works from companies that buy goods from other parties (or import them) and then resell them. It also works for companies that use 3^rd party manufacturing partners. Unfortunately, purchase order financing does not work for companies that do their own manufacturing.

So, how does purchase order finance work?

1. You get a confirmed purchase order from your client
2. The purchase order finance company pays your supplier
3. Your supplier ships the products, which are delivered to your customer
4. Once your customer pays, the transaction is settled

As you can see, purchase order funding is fairly straight forward to use and works well with most companies. It is also fairly easy to obtain. The main requirements are that you have a solid purchase order from a reliable customer and a well run business. It is also common to combine purchase order financing with accounts receivable factoring (also known as factoring). When used correctly, the combination of these two financing tools can help reduce the overall transaction costs and enhance your profitability

On average, purchase order financing works best in situations where the client has a profit margin of at least 25%. However, most purchase order finance companies can work with lower profit margins if the transaction is large or has exceptionally good customers.

Do you distribute, re-sell or sell wholesale products? If you do, you will soon encounter what may be your biggest opportunity for success… or failure. A large order from your best customer. A large order that exceeds your current financing capabilities. If you deliver it successfully, you can count on taking your company to the next level. If you don’t, your competitors will be the ones that eat your lunch and take their business to the next level

So, how do you handle an order that is too large for your business? You finance it. How? Using purchase order financing.

Let’s look at how things work in your business right now. Every time you get a purchase order from a client you go ahead and order the product from your suppliers. You either pay your supplier upfront or using bank financing. The supplier delivers the product and then your client pays you 30 or 60 days later.

However if you don’t have enough money to pay your supplier, the whole transaction falls through. Purchase order financing can provide you with up to 100% of the funds needed to pay your suppliers and make the sale.

There are only three major requirements to qualify for purchase order financing:

1. You must have a purchase order from a large credit worthy commercial customer
2. Your supplier must drop ship items directly to your customer
3. Your sales must be final (e.g. no guaranteed sales or consignment)

If you meet these three criteria, you have a very good chance of qualifying for purchase order financing. Purchase order financing works as follows:

1. You get a large purchase order from a client
2. The purchase order financing company issues a payment guarantee to your suppliers (usually through a letter of credit)
3. Your supplier drop ships the order and you issue an invoice
4. Once your client pays the invoice, the transaction is settled

With purchase order funding, your sales capabilities will no longer be limited by your financial strength. You can sell as much as you can finance. And – if your clients are credit worthy and good payers –you can finance as much as you want, the sky will be the limit.

New and growing businesses face a constant shortage of working capital. This shortage is more pervasive if you sell to other businesses or to the government. Why? Because other businesses and the government can take up to 60 days to pay their invoices. This means that you must find a way to pay employees, rent and suppliers while your wait for payment. More importantly, this cash flow shortage can also prevent you from drumming up new business, forcing you to slow down the growth of your business.

When then need working capital, most business owners go to their local bank for a business loan. However, they usually find out that business financing can be very hard to get. Banks have a number of onerous demands that make loans nearly impossible to obtain. For starters, you must provide a business plan and show financials for the last couple of years. Banks also require that you have substantial assets or a guarantor.  Although bank financing is very cost effective, getting it is quite hard.

So, what options do small and mid size business owners have? Well, two options that have been gaining traction in the past couple of years are factoring financing and purchase order funding. They each work in different circumstances and both can help a business grow. Furthermore, both are relatively easy to obtain and can be set up in days.

Invoice factoring is ideal for companies that sell products or services to business customers that take 30 to 60 days to pay. It provides you with an advance on your slow paying invoices, supplying the capital your business needs to pay employees and suppliers. By eliminating the payment wait, your business operates efficiently and is able to pursue larger opportunities.

Purchase order funding works for companies that resell finished goods, such as wholesalers and importers. PO financing provides supplier payments, usually through a letter of credit, enabling the client to close the sale. The transaction is settled once the client pays for the goods. It’s an ideal solution for small companies that have been getting growing orders and are running out of working capital.

Both factoring and purchase order finance are effective ways to finance a business. And, they are much easier to obtain than bank financing. The biggest requirement is that you do business with reputable clients who pay their invoices, albeit slowly.  This makes it an ideal solution for small and growing firms whose biggest assets are good products/services and a strong roster of clients.

Running an import / export company can be very rewarding and profitable. The US market for Asian imports has been growing at a dizzying speed, allowing many companies to reap the benefits. However, with growth, comes the concern about how to finance it.

The challenge is simple. Most importers must pay their own suppliers immediately when placing an order. However, they are also forced to extend credit to their own customers and wait to be paid until 30, 60 or 90 days after delivery.  Few importers can wait that long to recoup their money, especially since many have multiple orders open at the same time.

Importers that qualify for bank business financing programs, such as a business loan, can usually take orders until they exhaust their bank financing. Smaller businesses can only take orders until they exhaust the owner’s capital. Either way – once the owner’s capital or the bank financing is exhausted, business stops. But it doesn’t have to. Not if the importer starts using purchase order financing.

Purchase order funding is a great financing alternative, that allows importers to grow past their own (or their banks!) financial limitations. It provides the necessary financing to pay supplier costs, allowing the importer to make the sale and deliver their orders with confidence.

A big difference between purchase order financing and conventional financing is that banks look for tangible things (real estate, etc.) as collateral. Factoring companies (who provide po funding), on the other hand, consider your purchase orders from reliable clients to be solid assets that can be leveraged.

Purchase order funding is simple to use and works as follows:

1. You get a large purchase order (or po) from a customer
2. The purchase order finance company pays your supplier by letter of credit. Your supplier delivers the goods to your client
3. Your client receives the goods and pays for them. The transaction is settled and concluded

As opposed to bank financing, purchase order financing is relatively easy to obtain and can be set up in about a week or so. Although rates are very affordable, po financing works best in transactions where the margins are at least 15%.

If you ask the owner of a successful re-seller or importer company to identify their biggest challenge, their common answer will be: lack of working capital. Working capital is the lifeblood of all resellers and importers, enabling them to pay suppliers and allowing them to grow their businesses. Many times, their ability to grow is directly linked to their access to working capital.

So, where do re-sellers that wish to take their businesses to the next level go to get working capital? The bank? Unlikely, as banks are tough sources of business financing. To qualify for a business loan you’ll usually need to provide reports showing three years worth of profitable operations – and – the owner will need to have a spotless credit record. Oh, and if you are a startup, don’t bother. Few banks will provide working capital to startups.

Are there any alternate options? Fortunately, the answer is yes. Purchase order financing (commonly known as po funding) is a great source of financing for startups and growing companies that have exhausted their bank financing options. However, you won’t find PO Funding at your local bank, you’ll find it at your local factoring company.

PO financing is an ideal source of financing for resellers, wholesalers, importers, or just about any business that buys goods from third parties and resells them.  PO financing covers up to 100% of your supplier expenses, enabling you to close big sales and deliver on them. As opposed to traditional financing, purchase order financing uses your purchase order as the actual collateral. There are no set maximum limits, and you can finance as many orders as you want, provided that they come from commercially credit worthy businesses or the government, and have profit margins of 15% or more.

Purchase order funding works as follows:

1. You get a purchase order from a client. You place an order with your supplier
2. The purchase order finance company pays your suppler using a letter of credit
3. Your supplier delivers the product and your client acknowledges receipt
4. Your client pays for the goods and the transaction between the parties is settled

Purchase order financing can be an affordable financing option that allows you to expand your business when your bank financing options have been exhausted. It can truly enable you to close very large orders, with confidence, and take your business to the next level.

Most new and growing resellers and wholesalers have a very common dilemma. Their suppliers insist that they pay for goods up front. However, their own clients insist on getting 30 or 60 day payment terms. Few companies, especially startups, can carry the costs of operating the business for 60 days while waiting to get paid. And, those that can wait that long to get paid usually do so at the expense of future growth. They survive by turning orders away and downshifting their businesses, all while waiting to get paid.

Is bank financing the solution to this dilemma? Hardly. Banks don’t usually lend to startups. And when they do lend money, the process is long and complicated. Furthermore, most banks will require that the business owner present 3 years worth of audited financial statements showing a profit before making a loan.

But what is your business does not qualify for bank financing? There is an alternative called purchase order financing, and it offers a number of benefits that exceeds what most banks can offer. Its benefits include:

1. PO financing is available to startups and growing companies
2. It covers up to 100% of all supplier expenses
3. PO funding grows with you and is based on your sales potential
4. Can be set up in days – rather than months

So, what is purchase order funding? It a financial option that provides you with funds to deliver the goods on your confirmed non-cancelable purchase orders. It provides you with the necessary financing to pay your suppliers, freight and associated fees. The transaction is settled once your client actually pays for the goods and requires few out of pocket expenses. The collateral for the transaction is your client’s ability to honor the purchase order and pay for the goods.

Factoring companies, which offer po financing, charge for their services based on a number of variables such as the size of the transaction, the complexity and the financial strength of the customer paying for the goods. The charges will be either a percentage of the utilized funds – or in some instances – a percentage of the sales price.

It is also common to use po financing in conjunction with accounts receivable factoring. Factoring is used to finance the invoice that is generated from the po financing transaction and it’s used to close the purchase order financing line. Invoice factoring is usually cheaper than po financing, so using the two together helps reduce the total cost of the transaction.