“PURCHASE ORDER FINANCING
OR PURCHASE ORDER FACTORING CAN
FIX YOUR CASH FLOW PROBLEMS”

What is purchase order financing?

Purchase order financing, or purchase order factoring, is short term funding used
by a borrower to finance the fulfillment of a sales contract with a credit worthy end-customer. The terms of the purchase order financing agreement are very specific, requiring the borrower to use loan funds for the purchase of certain materials
and/or services needed to deliver goods to the end-customer. For instance,
a clothing manufacturer might use purchase order factoring to purchase fabric needed to construct garments ordered by a reputable department store chain.

How does it work?

Upon receiving a purchase order from your customer and submitting a cost breakdown to your financier, the financier will advance cash to your vendors,
and/or to your company, to cover the cost of material and labor necessary to provide the goods or services. The advance could cover other costs such as shipment and customs, but it generally does not cover overhead or profit and it does not exceed
a certain percentage of the purchase order. Upon delivery of the goods
and/or services to your customer, the purchase order then can be turned into
an invoice. The purchase order financier is paid back his advance and fee, usually
by your factor, from the proceeds generated by the invoice.

What are the benefits of purchase order factoring?

Purchase order factoring allows you to fulfill your customers purchase orders, even
if you are without sufficient funds. It is a fast way to obtain the cash you need to fulfill your orders and expand your business without increased bank debit or selling equity. You are also able to ensure timely deliveries while increasing your market share.

Who qualifies for purchase order factoring?

If you have a purchase order from a creditworthy customer and you have
a performance track record of delivering such products and/or services, then you generally qualify for purchase order factoring.

Who can use purchase order financing?

Purchase order financing is commonly used by manufacturers, importers, exporters, or distributors for:

• Issuing letters of credit
• Payment to third party suppliers for finished goods
• Payment of raw materials
• Payment of direct labor
• Payment for shipping, packaging, inspections, etc.

What are the fees for purchase order financing or factoring? 

Purchase order financing fees are higher than factoring fees because of the higher risk involved. A factor is always involved in purchase order financing in order
to minimize cost.

 

• Purchase Order Financing FAQ's
• Purchase Order Financing Process
• Reasons for Purchase Order Financing