What Is Purchase Order Financing?

And why does purchase order financing matter? Seasonal sales, business growth and expansion, and large orders can restrict your business cash flow.

Many clients want to pay on terms of net 30 or 60, but many of your suppliers demand payment on delivery.

At the same time you have to cover other expenses including shipping, labor costs, materials, packing, and many more further restricting your cash flow.

This type of financing helps free up your cash flow so you can grow your business and your profits.

You can get funds based on outstanding orders with existing clients.

The Specifics of Purchase Order Financing

While a bank looks at your company’s finances, these loans focus on the financing and credit of your customers.

This means you can get this type of financing even if you have damage to your personal or business credit profiles.

There are a few different types of purchase order financing currently available to help you and your business.

One option that is currently available is to obtain funds. These funds are paid directly to your suppliers.

You can receive advances up to 100% of the purchase cost to your supplier.  The bank will then pay your supplier and you receive immediate access to your goods.

The bank will collect the invoice payments from your client. And it will also pay you the balance between the order value and the amount paid to your supplier.

You receive the net total minus any fees once the creditor receives payment.

How Do Letters of Credit Work?

So, a second purchase order financing option is to issue a letter of credit to your suppliers.

This letter is a commitment to pay the supplier on their fulfillment of certain conditions.  The conditions are normally related to the supplier providing necessary documentation.  Governance for these Letter of Credits also comes from the regulations of the International Chamber of Commerce.

What is a Supplier Guarantee?

Plus, a third option is a Supplier Guarantee.  This is a commitment to pay the supplier from the available cash.  This cash comes from the funding of the receivables relating to the purchase transaction.

The amount of purchase order financing available to you will depend on the volume of outstanding purchase orders you have.

It is very practical to get over $500,000 in financing if you have that amount or greater in orders.

Funds can commonly be delivered within a week after approval, and interest rates and terms are typically very good.

Is Purchase Order Financing Right for You?

Find out!