PO Financing For Distributors and Wholesalers
Getting a large purchase order from a corporate or government client can be an important step for growing wholesalers and distributors. Obviously, if you have the resources to fulfil it and execute the order properly, you will get a chance to grow your revenues and your business. But if you don't have the financial resources to fulfil the order, this will be a missed opportunity. It will go to your competition.
Many entrepreneurs and small business owners face this problem regularly. They get a large order, but don't have the money to fulfil it. The problem comes from the fact that most wholesalers and distributors have long cash flow cycles. They have to pay their suppliers up front to get the goods from their supplier. But since large customers demand credit terms, you have to wait up to 60 days for customers to pay. It can take 90 to 120 days before you are able to recover your initial costs. Few businesses have the financial resources to wait that long. And growing under these conditions is very difficult - if not impossible.
For many small distributors and wholesalers, the problem is not lack of opportunity. The problem is lack of financing.
The solution - fund your PO's
There is a way to get around this problem that can improve your cash flow and provide the funding you need to handle large purchase orders. It's called po financing. As it name implies, this solution provides the working capital you need to pay your suppliers - foreign and domestic. This allows you deliver the order and book the revenues.
More importantly, this solution does not have line maximums like other products. The size of your financing facility is solely based on the creditworthiness of your purchase order, the track record of your supplier, and in your ability to execute the sale. The line will adapt to match your sales and grow, making it an ideal solution for companies whose biggest limitation for growth is lack of cash flow.
Is this solution for me?
While this solution offers a lot of flexibility and has a number of benefits, it is specifically designed to help companies that:
- Resell goods - without modification or installation
- Have confirmed purchase orders
- Work with creditworthy commercial or government clients
- Sell goods with high profit margins - often with gross margins in excess of 20%
Which orders qualify?
This solution only works for orders that are not for consignment sales or for guaranteed sales. This last point can cause some confusion. Contrary to its name, a guaranteed sale is one in which your client can return any unsold product for a full refund. In effect, you are guaranteeing your customer that they will sell all your products. These orders can't be funded because it's impossible to know how many units will be sold and how much the final invoice will be for.
How does this work?
Most po funding transaction follow a standard structure and work as follows:
- You get a purchase order from your client
- You place an order with your supplier
- We pay your supplier directly - usually via a letter of credit
- Goods are verified, delivered and accepted
- Your client pays - the transaction settles
Will my company qualify?
To qualify for this solution, distributors and wholesalers must meet this criteria:
- The company must not have any liens against its invoices
- Must not have serious legal or tax problems
- Must have experience in the industry and a small track record
The transaction can settle in two possible ways. One way is to simply leave the transaction open until your client pays. This alternative does work but can result in higher than needed costs. For many companies, a better alternative is to use accounts receivable financing in conjunction with po funding. Then, you can finance the invoice as soon as the goods are delivered and use those proceeds to close the PO line. Since A/R factoring a cheaper form of financing, you can lower your total transaction cost structuring the transaction this way.
Get a po funding quote. Services in the USA and in Canada. Competitive rates. Questions? (866) 730 1922.
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