What is purchase order financing?

P O financing is funding that allows a company to pay suppliers for products that will be sold to their customers. While this form of financing is expensive it is a sold financing mechanism to allow companies to satisfy larger purchase orders and contract they might otherwise not be able to finance in a business-to-business B2B transaction. Companies should have good gross margins to be able to absorb the financing charges.

Purchase Order Finance Inventory Financing Factoring Solutions !

Is there any solution, traditional or otherwise, to this ongoing Canadian business financing challenge? We happily tell clients there is. And you may find that due to the specialized nature and experts in this industry that are available, it is not as hard as you thought! It’s just a case of having the right knowledge and ensuring you qualify for such financing when you can benefit from a large purchase order or contract between a buyer and seller.

FINANCING OUTSIDE THE TRADITIONAL BANK SOLUTION

Traditional sources of purchase order factoring and inventory finance are the Canadian chartered banks. To qualify for such financing, the prerequisites for companies are obvious - a decent balance sheet and income statement, growth prospects with good customers, profitability, potential external collateral, and the guarantees of owners and shareholders. Easier said than done, right?!

ACCESSING THE WORKING CAPITAL AND CASH FLOW YOU NEED

Purchase order and inventory financing can provide you with the working capital and cash flow to grow your company. It is simply a case of securing this type of financing, but at the same time, recognizing that the costs and methodology around this type of financing make sense for your company.

HOW DOES FUNDAMENTAL P/O FINANCING WORK

By assigning or selling your rights in the purchase order to a specialized inventory and p.o. Financing firm your supplier is guaranteed payment of goods that you require to fulfill orders and contracts. When your supplier is paid, goods or products are shipped to yourself, or potentially your customer, less a financing fee, typically in the 3% range. That fee varies but is a good general starting point for discussion and negotiation.

WORKING THROUGH YOUR MARGINS AND ASSET TURNOVER IS KEY TO PO FINANCING!

The concept of the financing fee around purchase order and inventory financing is critical to your gross margin or overall profitability on your transactions. To qualify for purchase order funding you should not be in a low margin, slow turnover business.

The financing fee around a p.o. and inventory financing scenario can significantly eat away your overall profitability. Quite frankly, the inventory and p.o. financing firm might deem your overall ability to complete the transaction as not making sense for all parties – there is no reason to turn over sales and revenue if you do not have a solid profit outcome.

WHY IT'S ALL ABOUT TIMING !

We all know the saying ‘timing is everything. And how about another well-worn but quite solid cliché – ‘the sale is not completed until your invoice is paid. Those two well-worn sayings factor significantly into inventory and purchase order finance. The inventory finance firm expects to be paid when the product is delivered, and your invoice is generated.

In normal circumstances, if your firm is traditionally financed, you would borrow against your receivables and pay the inventory finance firm, which in some cases could be your bank (if you had access to traditional finance). If your firm can’t repay the inventory and purchase order financing company via a line of credit or cash, it is wise, and in fact, common, to arrange for factoring of your invoice.

This is simply the sale and discounting of your invoice – with those funds, you pay your supplier, your firm is now paid, and you have realized the actual cash profit on your sale (Assuming you had those good profit margins we spoke of!)

WHO ARE THE KEY PARTICIPANTS IN A P O FINANCE DEAL ?

By now, you have probably figured out that several key players play a role in the inventory financing and purchase order financing cycle. Those key players are your firm, customer, supplier/suppliers and the inventory finance and P.O. finance firm. All are dependent on each other to perform properly in purchase order factoring and in a timely fashion. By now, business owners and financial managers have probably realized the importance of validating your own customer, the purchaser or your product as being creditworthy and agreed to your payment terms. If those don’t happen, you clearly are at risk.

KEY ADVANTAGES OF P O FUNDING

Despite the costs associated with inventory and purchase order financing in Canada, there are several advantages – your company can grow significantly based upon access to large amounts of capital you might otherwise have not been able to raise or borrow.

And remember, inventory and purchase order finance is not debt on your balance sheet. You are simply monetizing inventory and p.o.’s to raise liquid capital.

NEED HELP ? TALK TO THE 7 PARK AVENUE FINANCIAL TEAM ABOUT YOUR PURCHASE ORDER FINANCE NEEDS

So, where do you obtain this type of financing? It’s a specialized form of business finance, and we suggest to clients that they obtain the services of a successful, credible, and experienced business financing advisor in this area.

That allows you to capitalize on growth opportunities. That person can also assist and help you wade through the finance maze of basic issues, which might include the size of the facility you need, what info you need to provide to complete the financing, how long does it take to arrange the facility, as well as the costs associated with your transaction on a one-off or ongoing basis.

CONCLUSION - FINANCING PURCHASE ORDER NEEDS

When you are comfortable that his type of financing makes sense, you should be able to complete your transaction within several weeks, assuming the proper level of transparency between you, your customer and your inventory finance and purchase order lender. Speak to 7 Park Avenue Financial regarding how PO Finance can help your business. Short term financing for large orders & contracts. PO Financing works!

FAQ: FREQUENTLY ASKED QUESTIONS

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

Purchase Order Factoring Inventory Finance | 7 Park Avenue Financial