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PO Funding and Trade Finance

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Learn how you don’t have to deplete your cash reserves

Purchase order financing (or PO Funding) is a short term commercial finance option that provides capital to pay suppliers so a company doesn’t have to deplete cash reserves. Here is a representative scenario:

  • A Business has a solid purchase order ready to fulfill, but not the funds to pay its suppliers upfront; nor is the bank willing to extend the amount of credit that would be required. Using a purchase order finance company, the suppliers are paid directly usually via a letter of credit. The business fulfills the order; with proceeds arriving after the shipment is received.
  • Purchase order financing is designed for growing businesses with little access to working capital and/or poor cash flow. The type of business that qualifies is usually a producer, distributor, wholesaler or reseller of manufactured products.
  • Simply put, it’s a way to purchase finished goods or raw materials that will be turned into products that are resold and shipped, usually within a relatively short time frame. It is based on having a verifiable purchase order. Typically, the financing is issued, completed and repaid in less than two months.
  • The following companies typically use PO Financing:
    • Wholesalers
    • Distributors
    • Importers and Exporters
    • Assemblers and Manufacturers

PO Funding and Trade Finance

The steps to being ready for purchase order financing are really quite simple.  (A company’s view) First a company needs to get a purchase order form their customer, secondly the need to find a reliable supplier for their products, and lastly place the order with that supplier. This will get them on the track to getting purchase order financing. It’s a great way to put a company on the map, or launch to the next level. More to the point, a company can avoid turning down a deal for lack of access to funding.

Unlike traditional finance sources your company is not solely concerned with the balance sheet and income statement. Final credit decisions are made based on for key criteria

  • Management Expertise – Look for companies with proven expertise in their field, even if they are start-up.
  • Reliable Sourcing – You can fund transactions with suppliers/subcontractors who have a proven track record.
  • Valid Purchase Orders – You can provide financing based upon firm valid purchase orders issued by creditworthy companies.
  • Verifiable Repayment- You must know it will be repaid. This can be from banks, factors, assets based lenders, letters of credit, or the ultimate end customer.

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