Purchase Order Financing

Purchase Order Financing - orders being fulfilledFund Rapid Growth With Purchase Order Financing

Any business will struggle fulfilling large or unexpected orders if they don’t have the working capital to cover the costs associated with those orders.

Purchase order financing allows you to borrow money secured by the PO itself. The PO finance company steps in and pays your suppliers, allowing you to fulfill orders beyond what your working capital can support.

There are many reasons why a business might struggle with large purchase orders. A company may be experiencing rapid sales growth, large seasonal sales or they might be undergoing a recapitalization. When you need funding to help you fulfill your customers’ orders, purchase order financing is a great option.

Purchase Order Financing vs. a Traditional Loan

PO financing is more flexible than traditional lending. Banks generally won’t lend against purchase orders without some other form of collateral, and in most cases the approval process takes weeks or months.

In contrast, a purchase order financing company mainly needs only the purchase order itself as collateral. With this in hand, it can then setup payments to your suppliers in a short period of time.

Purchase Order Financing Explained

A PO financing company will make direct payments to your suppliers so that you can receive the raw materials, sub-assemblies or inventory you need to make finished goods for your customers. You may also be able to finance other direct costs such as direct staffing costs.

By filling a large order, you are doing more than simply giving a customer what they ordered. You are establishing yourself as a larger, more compelling competitor in your industry.

If you have to turn down a large order, your company’s reputation may suffer. The client may never even consider you again if you show you can’t handle the demand.

A related, but different financing option is accounts receivable financing, which is when you sell your invoices for a quick infusion of cash that can be used for any business purpose. AR finance is often paired with PO finance.

Key Steps in the PO Finance Process

  1. Customer (buyer) orders product and issues a purchase order to the Client (manufacturing/service company using PO finance)
  2. Client orders product or parts from domestic and/or overseas suppliers (and/or assemblers if applicable) to fulfill the PO
  3. Client requests PO finance company to pay Client’s suppliers upon documentation and shipment
  4. PO finance company confirms payment method with supplier
  5. Supplier produces product and readies product for inspection
  6. PO finance company arranges inspection/confirmation of product to confirm product is as ordered
  7. Supplier get paid (either by drawing on a letter of credit arranged by the PO finance company or through wire transfer from PO finance company)
  8. Supplier ships the product
  9. Client delivers the product to the Customer and sends an invoice
  10. PO finance company gets repaid either through payment from the Customer or through an accounts receivable factoring/financing transaction
  11. PO finance company pays the Client the purchase order amount less fees

How Purchase Order Financing Works

A purchase order financing company needs only the purchase order itself as collateral, and can quickly setup payments to your suppliers. The PO finance company will also need to review your operational capabilities because they only get paid if you deliver a product and generate a good-to-pay receivable upon delivery.

Although purchase order companies rely on your customer for repayment, they also want to know that your gross margin is large enough to cover the financing costs and that you have a history of delivering to your customers on time and as ordered.

For you to get approved for this type of financing, the financing company will look at your business performance and order history, and the ability of each of your suppliers to deliver.

Benefits of Financing With Purchase Orders

  • Provides working capital fast
  • Grows your market share by fulfilling larger projects
  • No long term debt or dilution of equity
  • Discretionary and revolving — finance new orders at your discretion
  • Improves credit with suppliers

Potential Uses for PO Financing

  • Fulfil large B2B orders
  • Pay third party suppliers and assemblers
  • Delivery, installation and other direct costs prior to invoicing
  • Conserve working capital for other operational needs

Contact Us

You need a strategic, cost effective solution to your financing needs and a finance advisor you can trust. And one who never takes upfront fees. Let us put our decades of banking and structuring experience to work for you – email Speritas Capital Partners about purchase order financing today.

Call or text Jeff Bardos, CEO
directly at 203-247-4358
Schedule a call