Purchase Order Factoring
Factoring
Purchase Order Financing
Purchase Order Financing is used to pay your suppliers, laborers, or other intermediaries for goods or services to generate additional sales.
A company will need PO financing when:
- You need expertise to handle the financing
- You need additional working capital
- You need a quick response to an immediate sales need
- You don’t want to incur additional credit risk, be it foreign or domestic
- You want your buyers and sellers to not know each other
You want the opportunity to make additional profit
We understand all the above reasons and will work with you to fulfill your purchase order funding needs.
We offer purchase order finance transactions for all types of transactions that include:
- U.S. Supplier to U.S. Buyer
- U.S. Supplier to Foreign Buyer
- Foreign Supplier to U.S. Buyer
- Foreign Supplier to Foreign Buyer
Every purchase order finance transaction stands on its own. We look at your business history, the credit worthiness of the buyer, the ability of your supplier to produce the goods, and if the transaction is profitable for all parties.
Business History
We consider purchase order funding for those organizations with a track record of producing goods. Your company may be young or a start-up, but your company management must have a proven track record to produce the goods.
Buyers Purchase Order
Your buying firm must be reputable with a good credit line. The purchase order must be verifiable.
Suppliers
Your suppliers must know your product and be able to produce it in time and to meet your buyer's terms. The supplier must be a firm with a good business history and track record of producing goods.
Profitability
The transaction after all expenses must make a profit for all parties. Payment of the money lent to support the transaction can come from any number of sources such as factored receivables.
Purchase Order Financing is available only to qualified customers. P.O. Financing falls into two types:
- Finished Goods
- Non-Finished Goods
Finished Goods refers to transactions where the goods are never touched by you. Usually these goods go directly from your supplier to your buyer. You never take direct possession.
Non-Finished Goods are when you the seller take possession of the goods either in a raw state (such as yarn to make blue jeans) or a semi finished state (partially sewn blue jeans). In either case you must take possession of the product.
Finished Goods are easier to finance than Non-Finished Goods. We will need to assess your ability to complete the transaction in processing the goods for the final shipment to your buyer. We finance both Finished and Non-Finished purchase order financing.
In order to consider P.O. Financing for your firm we will need:
- Completed P.O. Application Form
- Your invoice to buyer
- Your supplier’s invoice
- Your purchase order to your supplier
- Profit on transaction - gross margins >18%
- Business History
- P & L (most recent)
- Balance Sheet (most recent)
- Time frame to produce goods
- Credit information on your buyer
- Supplier Information
- Finished Goods or Non-Finished Goods.
Generally we charge 5% (sometimes more, sometimes less) one time fee for purchase order financing on the gross amount to be paid by the buyer. Sometimes there may be an additional interest charge on the money advanced if the purchase order takes greater than 30 days to complete. Every purchase order pricing is individual and unique. This purchase order fee does not include the factoring fee which may cost an additional 3% to 6% if you are factoring the receivable. (Learn more about Factoring Fees).
We will consider financing a purchase order transaction to be paid out by another factor or lender. In order to see if the transaction will make money for both parties, please fill out the worksheet section of the application form. As you can see the total cost of purchase order financing fee and factoring fee can range from 8 to 11%. Since both of us need to make money, the gross margin should be greater than 18%.
Purchase Order Financing - How it works
Your buyer gives you a purchase order for goods. You give your supplier your company's purchase order to fulfill the buyer's purchase order. The gross margin between the two purchase orders should be at least 18%. Your supplier ships goods to you (non finished goods) or to your buyer (finished goods). Payment to your supplier is made by us immediately or some time in the future subject to the negotiated terms. This is called Purchase Order Financing.
If the goods (non finished) were sent to you from the supplier, you finish making the product and ship to your buyer the finished product. You send your invoice for your buyers order to us for factoring. We factor your invoice to your buyer. We advance you funds against this invoice less any factoring and purchase order financing fees. In this case, the funds are used to make payment to us to pay off the amount we paid to your supplier for the purchase order financing plus any purchase order fees for our services. When your buyer pays the invoice per terms we collect our factoring advance and interest charges. Any funds left are forwarded to you.
Purchase Order Financing Example 1: US Supplier to US Buyer
You are a car parts manufacturer. You have been in business for 5 years and have a good Profit and Loss Statement and Balance Sheet. You just received a large order and are maxed out on credit from your suppliers. Your sales price to your buyer is $100,000 and your total cost to produce the goods is $75,000. Your gross margin is 25%. We will purchase the goods for you from your supplier, give you 45 days to produce the goods, charge you a 5% purchase order fee ($5000, 5% of $100,000) and factor your receivables.
Purchase Order Financing Example 2: Foreign Supplier to US Buyer
You are importing car parts from China. You do not need to touch the goods, they will be shipped directly to the buyer, a large U.S. retailer. The cost of the goods is $500,000 and you will sell them to the buyer for $700,000. Gross margins are 20% (after all importing costs). We open a Letter of Credit to your supplier and will factor the receivables. When the goods are shipped your Chinese supplier will get paid. When the goods are landed in the U.S. and shipped to the U.S. buyer, we will factor the receivable and pay the purchase order from the funds advanced.
Purchase Order Financing Example 3: Foreign Supplier to Foreign Buyer
You are an international car parts broker. You are buying car parts in China from a reputable supplier and selling it to a credit worthy buyer in Chile. The gross margin on this sale is 18%. We will finance the full transaction by wiring funds to your supplier of car parts for $80,000 and collect payment from the Chilean buyer of $110,000, less our factoring fees, insurance and inspection fees.