PO Finance Article: What is PO Financing?
Are you a distributor, reseller or wholesaler of goods? As a distributor, your biggest accomplishment – getting a very large order – can turn into a nightmare if you don’t have the financial resources to deliver it. Why? Because if you don’t fulfill the order, you risk losing your client.
But there is a simple solution to this problem, and you won’t find it at your local bank or a business loan. It’s called PO financing. PO financing provides you with the necessary financing to buy the goods from your suppliers, deliver them to your customers and close the sale.
And you can use PO funding even if your company doesn’t have credit. How? By using your purchase order from a strong customer (or the government) as collateral. It’s an ideal tool that can help a company grow past its current financial limitations.
Let examine a sample PO financing transaction. It usually has 6 steps:
- You get a PO from your client
- The factoring company pays your suppliers via a bank wire or letter of credit
- The order is delivered to your client, who accepts it
- You invoice your client
- Your client pays the invoice, concluding the order
- The transaction is settled
Although purchase order financing is a great tool, it is not for everyone. Given the associated risks, most po financing companies will only finance transactions that:
- Sell goods/products that are manufactured by a 3rd party
- Sell goods to reputable clients or government entities
- Have profit margins of 25% or more
If you meet these criteria there is a big chance that PO financing will be able to help you. And an additional benefit of PO financing is that is relatively easy to obtain and can be set up in a week or two.
Click here to return to the Purchase Order Financing Resource Center.
Are you interested in purchase order financing? Call (877) 300 3258 to get more details or fill out this form to get a free purchase order funding quote
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