Inventory Purchase Order Financing Canada

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

PURCHASE ORDER FUNDING

Inventory and Purchase Order Financing in Canada is a niche, specialized area of business financing for Canadian firms who have a customer's purchase order they otherwise might be unable to fulfill.

Prior to contemplating securing this type of financing with a purchase order financing company we encourage you to talk to a credible business financing advisor such as 7 Park Avenue Financial with experience in these areas in order to fully understand the cost and how a purchase order and inventory financing solutions might work for your company.

WHAT IS PURCHASE ORDER FINANCING & FUNDING

Purchase order financing, aka ' PO Financing' is a cash advance financing solution provided by a commercial PO financing company, These financing companies typically offer financing that allows a business to deliver their goods to a client based on the customer's creditworthiness and solid profit margins in the transaction.

Small business owners and even Government contractors can also fund orders in such a manner, as many small businesses can't generate enough capital to fulfill large contracts. Instead of resorting to short term business loans a combination of invoice factoring and invoice financing funds the purchase order. Purchase order financing rates are higher but allow small businesses to accept and fulfill large orders and grow their business and operations.

Financing can be for part of an order or the complete order. When a customer pays the business will receive its money after the PO Finance company deducts their fees.

Businesses that utilize Purchase Order Finance can take on additional large orders and contracts that otherwise might not be able to be fulfilled. A successful initial transaction can lead to a long term financing relationship.

WHY DO COMPANIES NEED INVENTORY AND P O FINANCING SOLUTIONS

The need for inventory and PO Financing in Canada arises generally from two areas of demand for clients – they are growing too quickly and have secured new orders and contracts which they need to finance - while their financial statements might not support the level of financing required. Banks do not offer P O financing.

In PO funding funds are utilized to pay your supplier costs that are a part of your purchase order from clients as you receive immediate cash to fund your customer's order. Your vendor/supplier receives payment for materials and products related to your P O.

Secondly, since inventory for many firms is a key component of your current assets the Canadian business owner has traditionally found it challenging to finance inventory through traditional institutions such as our Canadian chartered banks.

In the majority of companies in Canada, all working capital revolves around the turnover of inventory and receivables – Depending on which industry you are in and what your product is the inventory line on your balance sheet can be very significant in relation to your total working capital.

If your firm turns over inventory, say for example, in 60 days but finds you need to now keep 90 days of inventory on hand your cash needs are therefore growing, really those needs are the new equivalent of another 30 days of sales.

HOW TO CALCULATE INVENTORY TURNOVER

Most companies know how to calculate their investment in inventory – it’s a simple calculation you should probably be monitored monthly. The calculation is as follows:

In Canada, you might have to consider alternative financing of your inventory outside your banking or regular arrangements. Really this is a form of what we call asset based lending, with of course inventory as our focus as far as your financing options are concerned.

It is also important to know how accounts receivable days sales outstanding affect your cash flow and how DSO is related to overall working capital.

WHAT AMOUNT OF FINANCING CAN YOUR COMPANY OBTAIN FOR INVENTORY

How much finance can you get for your inventory? You probably know the answer already, which is of course – ‘it depends! Depending on the quality of your inventory, and it's turnover you should be able to receive anywhere from 40-60% in our experience. The greater the commodities value of your inventory the greater financing you will get.

Businesses looking to fund purchase orders should be prepared to submit copies of the purchase order, supplier information, a breakdown of supplier requirements as well as a standard business application form that might require financial statements, business history, owner info, etc.

HOW MUCH DOES PURCHASE ORDER FINANCING COST?

PO Financing continues to be another unique challenge for growing or many times smaller firms in Canada. It’s a vicious cycle the Canadian business owner or financial manager is very familiar with – their suppliers want payment upfront, your customer won’t pay you in 30-60 days, and you’re caught in the middle with the manufacturing or delivery dilemma. Banks traditionally cannot assist you in this need, as they will tend to focus on traditional borrowing criteria.

Borrowers should note they a company should have a good gross margin to support the costs of PO Finance.

But the purchase order financier will pay suppliers on your behalf, take collateral on the inventory, and monetize that inventory into cash when you create your receivable and shop goods. Purchase order financing is expensive, generally in the 2-3% range per month, so you should view this as a reduction in your gross margins. If you have good gross margins you can significantly benefit from P.O. Financing.

CONCLUSION - PURCHASE ORDER FINANCING COMPANIES

In summary, inventory and purchase order financing is needed by many Canadian firms that cannot otherwise finance their business traditionally. They can also be combined in the business line of credit facilities from alternative lenders. These two types of financings are specialized and should be entered into with a proper level of analysis of costs and benefits via the financing process. The purchase order financing transaction can be complex so talk to an expert.

How does purchase order financing work and do you want to know more about how it can benefit your firm?

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK/ MORE INFORMATION

What is the best way to finance inventory?

Can you get a loan with a purchase order?

PO financing solutions are not debt per se and do not bring additional term debt to a company's balance sheet. The ability of a P O financing company to pay a vendor on a firm's behalf allows the business to in effect monetize their purchase order and fulfill client orders. The PO funding solution allows a company to take on larger orders and contracts and the PO Financing company deducts their fees from the remaining balance only when the order is paid.

Who Uses Purchase Order Financing?

A large number of businesses qualify and can use P O financing - Firms such as distributors and resellers/wholesalers can benefit from inventory and PO financing.

Many industries have seasonality attached to orders, and P O Funding is a type of ' bulge financing ' that allows a business to smooth out cash flow and working capital needs as they deliver the goods to clients on orders and contracts. Firms that do not have all the access they need to traditional credit and banking can benefit substantially from this method of business financing.

' 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

Inventory Purchase Order Financing Canada | 7 Park Avenue Financial

PURCHASE ORDER FINANCING IN CANADA WORKS!