YOU ARE LOOKING FOR PURCHASE ORDER FINANCING TO SOLVE CASH FLOW PROBLEMS AND GROW REVENUES!
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the most significant issues facing business today
Unaware / Dissatisfied with your financing options?
Call Now! - Direct Line - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
Email - sprokop@7parkavenuefinancial.com
"The best way to predict the future is to create it." - Peter Drucker
A P O financing company revolutionizes cash flow management for growing businesses, enabling them to seize opportunities without diluting ownership.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Trade P O Financing and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
THE PURCHASE ORDER FINANCE SOLUTION : P O FINANCING COMPANIES
Purchase Order financing and inventory financing /invoice factoring are relatively new alternative financing solutions in Canadian businesses.
These two solutions provide additional flexibility when combined with traditional financing sources from your Canadian chartered bank or independent finance firm.
It is a common fear among small-business owners that they will be unable to fulfill large orders because their company’s funds are tied up. However, suppliers often find themselves short on cash and can turn towards P O Funding solutions without risking losing potential customers!
Think of P O Financing as a short-term finance option, allowing you to access capital to pay vendors and suppliers when you have a verifiable purchase order or contract.
WHAT IS PURCHASE ORDER FINANCING - PO FINANCING VS FACTORING
Purchase order financing is a short-term funding option that provides business capital to pay suppliers in advance for qualified purchase orders.
The key benefit of P O finance is that it allows companies to accept larger orders and contracts that would otherwise not be financeable by the company based on available financial resources -
Factoring is the funding of invoices already generated where goods and services have been invoiced and awaiting client payment.
It's a unique source of capital from a financing company without giving up equity. PO Finance solutions are all about the transaction, providing you with the liquidity to grow your company without taking on additional debt.
DO BANKS OFFER PURCHASE ORDER FINANCING?
The first type of financing institution that offers purchase order loans is a traditional lender.
However, we advise clients that banks don't commonly advertise their services in this area but may offer long-standing customers who have been around for years and who have strong financials.
New clients at 7 Park Avenue Financial have quickly found that their current banking and funding arrangement formula is well beyond what they need in immediate financing. Let’s dig in.
P O Financing works very well in work-out situations.
The borrower’s existing bank/s does not want to finance all the inventory purchases as it goes beyond the borrowing formula set by the bank. So, a purchase order loan is used to pay the supplier's invoice based on agreed-upon payment terms until a customer pays.
Traditional business and bank lending in Canada typically cannot meet the SME need for financing of large purchase orders and contracts.
Most clients we meet can't satisfy the bank requirements of collateral, reliable financial statements, external guarantees, etc. Industry experts say that a significant percentage of all businesses requiring SME COMMERCIAL FINANCE solutions are continually worrying about their cash flow, let alone the cash flow of large new orders. Enter the P O FINANCE solution.
WHO USES PURCHASE ORDER FINANCE LENDING FACILITIES
Growing and smaller and medium-sized businesses that have access to revenues otherwise not financeable utilize PO Financing - Your firm might not be able to generate the cash flow investment in a/r and inventory that comes with larger orders and contracts.
The types of firms that use P/O FINANCE are those with manufacturing PO financing needs, i.e., manufacturers and distributors, and firms with an import/export business model.
Typical clients seeking this type of creative financing have large bulges in incoming orders or some seasonality attached to their business. EDC Financing can also be considered for out-of-country transactions, as can financing from BDC Finance.
Traditional business financing in the context of working capital and cash flow revolves around the traditional current assets of receivable and inventory.
Even if your firm is well-financed and has a classic bank line of operating credit, you may have challenges in fulfilling large orders and contracts.
This challenge becomes equally daunting when you don’t have traditional financing, so the ability to generate cash to fulfill larger orders and contracts becomes seemingly impossible.
Utilizing P O Finance allows you to take on larger orders without the commitment of a debt financing/loan solution.
Purchase order financing/purchase order loans can provide you with the capital to fill those large orders and contracts. If properly implemented, they can be very complimentary to your current financing.
As we have noted, purchase order financing, aka ‘P.O. Financing, ‘is a relatively new phenomenon in Canada.
HOW DOES P O FINANCING WORK?
Purchase order financing companies are a solid method for businesses with large purchases to get their goods without paying upfront.
Based on the customer's purchase order and your financing being approved, the purchase order finance company will pay suppliers, typically via a letter of credit or some other mechanism.
Financing is provided to cover your material and direct labor costs, which are, of course, a significant part of your order or contract.
In many businesses, 60-70% of the total order or contract is based on the gross margins in any industry. The purchase order funding process begins with accepting an order from a verifiable customer.
In most of these cases, clients of 7 Park Avenue Financial require financing because our client's supplier requires payment in advance. The working capital cycle has now kicked in!
Most clients know that full payment will probably not be received for another 60-90 days. Business owners, of course, do not want to lose the order and are typically unable to obtain Canadian chartered bank financing based on their current financial position.
The verified purchase order represents opportunity and value, though - it merely requires accelerated funding.
So, in the P O FINANCE process, your supplier is paid either directly in cash or, in some cases, a letter of credit with conditions related to your purchase order re-delivery, amount, pricing, etc.
The key to purchasing order financing company approval is your ability to present your company and management experience.
PO FINANCING COSTS
It's safe to say the complexity of this type of financing is why it is more costly -
There are several moving parts: the timeline around the order and delivery, credit risk, etc. Purchase order lenders distinguish themselves by being experts in alternative finance.
They have the expertise and ability to look at the entire order cycle, including the creditworthiness and legitimacy of your supplier/suppliers.
WHAT DOES THE P O FINANCE COMPANY LOOK FOR IN YOUR TRANSACTION?
APPLYING FOR PURCHASE ORDER FINANCE
As we have mentioned, PO FINANCING is a more expensive form of financing, so your firm must sustain the gross profit margins that satisfy your profits and the financing cost in the transaction.
3 KEY ITEMS TO START YOUR P O FUNDING APPLICATION
You should be able to provide the following at the commencement of your purchase order finance financing request:
1. Supplier Invoice
2. Your firm's sample invoice to the customer
3. General business information such as financials, legal name of your company, etc
Your firm, therefore, now has the working capital to finance your production and fund purchase orders. What’s left, of course, is essentially the profit on your P.O. or contract.
While it sounds relatively simple and easy, we would point out some critical issues that will allow the Canadian business owner and financial manager to determine if their firm qualifies for such financing.
First, there has to be sufficient proof that your purchase order or contract is with a valid, creditworthy party.
Naturally, if there is any doubt that your order might not get paid or that the customer is not creditworthy, that precludes the successful completion of any purchase order financing.
You should also not view purchase order financing as a long-term financing solution. It is not that. The funds are generally repaid immediately after completing your order/contract.
P O FINANCING VERSUS FACTORING
Some technical issues need to be addressed if you have secured financing arrangements in place already.
For example, if your firm has a bank line of credit, they would be required to acknowledge the security taken in the Purchase order and the resulting receivables you create.
In our experience, Purchase order financing works best when a secured lender is not already in place, but that’s just our firm’s observation.
Additionally, specific other collateral or personal guarantees might occasionally be required.
We would hasten to add that if you have already provided guarantees to the bank or other firms, it would seem logical that you would provide them on the purchase order financing, which is somewhat of a riskier transaction for the lender.
Most clients at 7 Park Avenue Financial realize that purchase order finance companies provide one-stop funding that takes you from the order to collecting the receivable.
THE IMPORTANCE OF GROSS MARGINS IN CONNECTION WITH YOUR PURCHASE ORDER FINANCING AGREEMENT
Note that P O loans that allow you to fund purchase orders are often very well received by suppliers who know they will be paid.
Also, government purchase order financing is available. Another critical point is the gross margin issue. You need good gross margins to complete purchase order financing!
A firm in a low-margin, very commodity-oriented business is not a strong candidate for P.O. Financing because the combination of cost of goods, labour, overhead costs, and financing costs of the funding leaves very little for the business owner.
So, categorically good gross margins make a much better P.O. Financing deal.
Costs in PO FINANCE tend to be different for each transaction based on several factors, including the cost of capital, time to complete the order, etc.
International purchase order financing may also bring new complexities to your transaction regarding sovereign risk.
For business owners and financial managers looking at purchase order financing lenders, it is important to weigh the costs and benefits of the transaction.
In many cases, larger POs and contracts are a key part of company growth plans, so they are prepared to forgo some profit to achieve sales goals.
In many cases, traditional financing can't react quickly enough to satisfy the timelines of your order. So alternative finance solutions such as P O Finance, Inventory Financing and A/R financing solve your financing need... quickly.
So why has this type of funding become popular? That’s fairly easy to understand. First of all, the current Canadian business financing environment is challenging, so any alternative financing vehicle has a strong chance of being embraced and becoming more popular.
After that, it simply makes sense that solutions from PO financing companies can be very successful for your firm if they give your company working capital you didn’t have.
It allows you to grow and profit at greater levels and improves your competitive positioning within your industry with financing to fulfill orders.
KEY TAKEAWAYS
- Purchase order basics: Understand how P O financing leverages confirmed orders to secure funding.
- Eligibility criteria: Learn key factors lenders consider, such as creditworthiness and order size.
- Cost structure: Grasp fee components, including advance rates and factoring charges.
- Application process: Familiarize yourself with the required documentation and approval timelines.
- Risk mitigation: Recognize how top providers assess and manage potential transaction pitfalls.
Unlock your business's full potential: Turn purchase orders into instant cash with top-tier PO financing!
CONCLUSION / PURCHASE ORDER PO FINANCING
In today's competitive market, many companies have less working capital and cash flow than anticipated.
This can be a problem when several large orders come in simultaneously, and your small business doesn't have enough cash to fill them.
Statistics tell us that 60% of surveyed entrepreneurs worry about Cash Flow Problems monthly (and most say these worries outweigh other concerns), emphasizing the need to access business capital as required.
Need Purchase order financing?
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian Business Financing Advisor with a track record of business finance success who can assist in maximizing your cash flow and working capital with this unique, innovative financing for business loans that makes sense for your business.
FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION
How does a purchase order financing company work?
Purchase order financing is a funding solution where a finance company provides capital to fulfill customer orders, typically paying suppliers directly and collecting payment. The client pays the financing company directly. Companies with a poor or minimum financing margin will have trouble funding PO's - as good gross margins are required.
What is BDC and EDC?
BDC and EDC are two Canadian crown corporations that often work together to provide financing for business loan and expansion financing for Canadian companies looking to expand globally and require the finances t meet their growth goals.
What does Purchase Order Financing Cost?
P O financing can cost between 2% + per month so borrowers must be able to absorb the cost of financing in their gross margins, Additionally P O finance funds goods and products, not services. The transparency of purchase order funding and P O financing debt solutions makes your clients and suppliers aware of your P O financing strategy.
What is the difference between purchase order financing and factoring?
Purchase order financing and factoring of invoices are both forms of alternative financing for businesses requiring cash flow to grow their product revenues. The PO financing company allows a company to fulfill an order or contract by providing funding in advance to fulfill the order with their suppliers when up from cash to pay for goods is unavailable - that's what clients want when seeking top purchase order financing companies.
Factoring of invoices happens when the order is completed and a client is invoiced - allowing the company to receive cash before the client pays the invoice, thereby accelerating the working capital cycle. Purchase order financing works best when the proper a/r finance solution is in place.
What is invoice financing?
Many businesses utilize invoice financing, which allows them to generate immediate cash flow via outstanding invoices to their clients. Companies can use traditional factoring solutions or alternatives such as confidential receivable finance. Companies with tight cash flow can improve working capital via this financing solution from an invoice factoring company versus traditional small business loans.
What are the main advantages of using a P O financing company?
Access to immediate working capital, ability to take on larger orders, improved cash flow management, and potential for rapid business growth without diluting ownership.
How does a P O financing company differ from traditional bank loans?
P O financiers offer faster approvals, focus on the strength of your purchase orders rather than credit history, and provide more flexible funding options tailored to your business needs.
Can using a Purchase order financing company help improve supplier relationships?
Yes, by ensuring prompt payments to suppliers, you can negotiate better terms, strengthen partnerships, and potentially secure volume discounts for future orders.
Is it possible to scale my business faster with top-tier PO financing?
Absolutely. P O financing companies provide the capital needed to fulfill larger orders quickly, enabling you to take on more clients and expand your operations acceleratedly.
How does working with a P O financing firm impact my company's financial stability?
By providing a reliable source of working capital, top P O financiers help stabilize cash flow, reduce financial stress, and create a more predictable business environment for sustainable growth.
Who is the ideal candidate for P O financing?
Businesses with confirmed purchase orders from creditworthy customers, especially those in manufacturing, wholesale, distribution, or import/export industries, are often ideal candidates.
How quickly can I receive funding from a top P O financing company?
Depending on the transaction's complexity and the documentation's completeness, Leading P O financing companies can often provide funding within 24-72 hours of application approval.
Are there any industry restrictions for P O financing?
While P O financing is available across many sectors, some industries may face restrictions. Service-based businesses or those dealing with perishable goods might find qualifying more challenging.
What happens if my customer doesn't pay for the order?
P O financing companies typically conduct thorough credit checks on your customers. However, if non-payment occurs, the specific terms of your agreement will dictate the resolution process.
How does the best P O financing company evaluate potential clients?
Top P O financiers assess factors such as your customer's creditworthiness, the size and frequency of your orders, your business track record, and your sales profit margins.
What role does technology play in modern P O financing solutions?
Leading P O financing companies leverage advanced technology for streamlined application processes, real-time transaction monitoring, and integrated supply chain management tools to enhance efficiency and transparency.
How can businesses maximize the benefits of working with a premier P O financing provider?
To maximize benefits, companies should maintain clear communication with their financing partner, provide accurate and timely documentation, and strategically plan their order fulfillment to optimize cash flow and growth opportunities.
