Do you want to accept larger orders but lack the working capital financing to fulfill them? Using purchase order financing gives you the ability to fulfill all your sales orders, even those that exceed your norm in volume or scope. 100% financing of your supplier costs frees up your cash flow for critical business expenses allowing you to deliver bigger orders.
Does your firm want to sell internationally but find the financing too complicated? International trade financing is a breeze when you work with a cash flow business that finances purchase orders.
What is Purchase Order Financing?
In its simplest form, purchase order financing – sometimes called purchase order factoring or PO funding- is the financing of an order rather than the delivery of a finished product. Generally, it is a short- term transaction, lasting 60 days or less.
The company receiving a purchase order (the “client”) assigns it to a third-party cash flow business, which then pays the client’s suppliers for raw materials or goods needed to fulfill the order. Once the order is completed, the cash flow business that provided the PO funding is reimbursed and collects a fee with the balance of the payment forwarded to the client.
Purchase order financing is one of two types – finished goods and non-finished goods.
In a finished goods transaction, the client company never handles goods. Typically, the product is shipped directly from the supplier to the end customer. A non-finished goods transaction gives possession of raw materials to the client for completion and shipment to the end customer.
A finished goods transaction is easier to finance than non-finished goods. The client will have to demonstrate the ability to complete the processing or manufacture of the product for final shipment to its customer.
Purchase order funding works in tandem with accounts receivable factoring. When the client company generates an invoice to its customer for payment of the order, another type of cash flow business – an invoice factoring company – advances funds to the purchase order finance company to pay its lien and fee. Once the invoice is paid in full, the invoice factoring company collects a fee for its services and forwards the balance of the funds to the client.
Purchase order funding is an excellent method for businesses to obtain quick money and expand operations. Use it to pay suppliers; use your existing cash for marketing, additional employees and tools you need to grow.