Purchase Order Finance bridges the capital needs of a business from the receipt of an order to delivery and acceptance. The financing can range from providing credit for the purchase of finished goods all the way to paying for the widgets and labor involved in manufacturing the product.

PO Finance is a form of specialty finance. Purchase orders are instruments that require understanding. A PO is not traditional collateral. It is, instead, an indicator of a possible sale assuming the client can perform and deliver the goods or services in the quantity, quality, price and time frame the buyer requires.

Having helped many businesses with their PO Financing needs over the years we have developed a disciplined process and team able to provide you with a very diverse set of purchase order financing solutions.

How Purchase Order Financing Works
PO financing is conducted by providing financing for an actual order received by a business from their client. Therefore, we start with your order and make sure it is a valid PO from a creditworthy end buyer. If the end buyer is a credible business and has the money to pay, the transaction has the credibility it needs to receive financing.

The typical PO finance client has a regular lender, yet needs financing to fulfill an order much larger than their lender can help with, i.e. the client does not have the sufficient collateral to receive traditional financing. PO financing performs in the absence of collateral by assessing and giving value to the client’s ability to perform.

Can the Client Fulfill the Order?
A great deal of research and analysis is conducted to determine whether the client can perform and fulfill their orders if given the appropriate amount of capital. The question comes down to “Has the client received and accepted an order they are capable of fulfilling?”

Many times, fulfilling a large order can overwhelm clients. The business may have limited space or labor to produce the service or goods. However, if the client demonstrates the ability to perform, Purchase Order Financing has a good chance at success.

Criteria to Qualify for Purchase Order Financing
To determine if the client will qualify for PO financing we review various aspects of the client and their order.  First, is the price of the PO a fixed value? Meaning it is agreed and understood that if the good or service is delivered that the price will remain the same.

Second, if the order is delivered as required, will it be paid per the pre-determined payment terms or be contingent on something the client can not control? This is called contingent orders or consignment orders since they are only paid if the good or service can be sold by the end buyer.

Determining the status of a PO is complex because orders can be cancelled or delayed if the previous delivered goods or services did not sell. To limit the risk, we need to understand the client’s internal processes. To understand how firm an order is, one must understand and verify if the order is a first, second or a monthly fulfillment order.

Third, read the fine print. Purchase Orders are usually issued subject to fine print either as part of the order, on the back of the order, or in a vendor agreement that is signed prior to doing business with the end buyer. The terms of the purchase are very important and if the basic terms (delivery date, quantity and quality) of the purchase order are not met, the fine print will state what rights the client may or may not have.

Fourth, another consideration is the client’s financial strength. The typical client seeks Purchase Order Financing when their capital is not sufficient to fulfill their orders. This is not to say the client is not a financially sound business, but they simply do not have enough cash or credit to fulfill an order or group of orders. Therefore, when entering into PO financing, the client’s order and performance are more important than their financials.

However, although the client’s financials are not the primary focus, they are important to understand as well as the client’s actual cash flow. The financials will give the background to help with structural changes necessary or subordinations and inter-creditors agreements. Ultimately, the primary repayment comes from the delivery and payment of the order.

PO financing - an Excellent Choice!
PO finance takes many forms but ultimately it allows companies of all sizes to take advantage of sales growth opportunities without the constraints of traditional finance sources. When a company’s sales growth is constrained by its availability to capital, PO financing is an excellent solution.