Purchase Order Financing 101 | Small Business Talk

By admin on May 31st, 2011

Knowledge of the ins and outs of Purchase Order Financing is an absolute requirement to nearly any small or medium sized business owner. Below you will find out exactly what Purchase Order Financing is all about, the good, the bad, which companies can use it, those that can not and where to go to get funded.

What is Purchase Order Financing?

Purchase Order Financing is a ?method that enables a corporation to purchase raw materials or finished goods that will be turned into products and sold in a very short period of time. Purchase order financing is short term in duration and is usually retired within 30 to 60 days of issuance?. [Ref: yourdictionary.com/finance/purchase-order-financing]

This is the ultimate resolution for the small start-up companies that have business coming yet do not have the financial backing needed to purchase the product needed, pay their employees, and ship the completed orders. Purchase Order Financing is also useful to smaller to medium sized companies that have won over a large customer and are now looking to fill very sizable orders.

Who can benefit from Purchase Order Financing?

? PO Financing is an awesome tool for smaller to medium sized companies who normally do not have access to the resources for hefty orders that have the potential to knock their sales out of the park and turn their brand into a well known brand name. After you have made the effort to pitch your goods to a key retailer, then acquiring the big order from them, and then not having the ability to complete the order because you are short on funds can be a death blow. Purchase Order Financing can prevent this sort of thing happening, so be prepared.

? If you are business that has just been awarded a contract for your goods so large that you require a six-figure Business Loan in order to fulfill the order?you are a good candidate for PO Financing. A PO Financing Company is not interested in funding each order to prevent a company from using it?s own funds for operations, it is purely a way for companies to acquire the resources required to complete orders that are so large that your company can not accept the deal because you do not have access to the funds to make it happen.

? Companies that are wholesalers or resellers of a product that they purchase in ready to ship to their customer condition, such as drop shippers, or are assembling product to distribute may be suitable to obtain Purchase Order Financing.

For example, if you are a service company or do manufacturing with raw products, you would not likely meet the criteria to be approved for Purchase Order Financing. Even though you may need funding not available to hire employees to execute the service, the process itself is performance driven and as such would not be eligible under most PO Financing Company guidelines.

What are the drawbacks of Purchase Order Financing?

The drawbacks are few to using Purchase Order Financing, but there is one that can be seen as a drawback as well as an advantage. The main qualification factor that can possibly be a road block for you is when a Factoring Company approves your funding; they expect to be satisfied once your client takes delivery the finished goods and pays for it. Due to this, most Factoring Companies will not only look into your credit but also the credit of your customer(s) to be sure that you will not taken advantage of and be left without the payment of your invoice. Purchase Order Financing Companies are not just at risk with you, they are at risk with your clients too. The Factoring Company are the ones with the real risk because if there is a problem and the deal goes bad, they loose big. Be aware if your client?s creditworthiness so there are fewer surprises when it comes to beginning the Purchase Order Financing application process.

What to look for in a Purchase Order Financing Company

You need to work with a Purchase Order Finance Company that is a fit for your company. Be sure to follow these rules so you better understand what you are getting involved with. There are on-line Commercial Finance Brokers that are an excellent resource in finding the Purchase Order Factoring Company that fits you best:

? What are the guidelines for minimum and maximum fundings? You must ensure underwriting criteria satisfy your financial requirements. Some companies will have thresholds that may require a minimum loan amount in excess of what you need.

? What are the other underwriting guidelines do they require. These vary from Commercial Lender to Commercial Lender. It is best to know this up front as to not waste your time applying for their funding.

? What are the timelines that the Commercial Lender requires in order to be satisfied? If your delivery time or billing cycle is outside of this timeline requirement, again, it is best to know this as to not waste time. This is especially important when it comes to overseas deliveries as the transit time can be 2 months just to reach your country.

? Be sure the Commercial Lender you have found has terms that are acceptable to you. Their fees and rates must be affordable and comfortable to you.By: Wade Henderson

About the Author:

In the Commercial Finance world, Purchase Order Financing can be a small company?s best friend. Normally the settlement stipulations permit time for manufacturing of your product and it is the simplest way to acquire funding without sacrificing ownership in your company. The fact that the Commercial Lenders will check into all aspects of the likelihood of the transaction being realized and you will collect from your customer because the credit worthiness of all concerned will have been evaluated; the entire process may prevent you from generating sale for a deadbeat purchaser. At the end of the day, PO Financing is a creative way to fund a good sized sale that could very well put your merchandise on the shelves of the most desirable retailers.

Wade Henderson

Pro-BargainHunter.com

.

Comments are closed.

Source: http://small-business.dynamicwebsiteconstruction.co.za/purchase-order-financing-101/

gibbon texas botox mom models katy perry et kate gosselin tmz