If you have a Purchase Order from a credit-worthy customer, but lack the funds to pay for the goods prior to receiving payment from your customer, we are able to help by providing you with Purchase Order Finance.
Our expertise will enable you to cut through the red tape involved in the issuing of international and domestic Letters of Credit.
We are able to arrange inspection of your goods anywhere in the world thus minimizing the risk of payment for merchandise that does not conform to your or your client’s specification.
We are able to fund the transaction from the time of shipment to you until your customer pays for the goods. If, however, you have other receivable financing arrangements, we will bow out at the point that the goods in question become a receivable.
- Your most recently available financial statements.
- Short summary of transaction
- A current aging of accounts payable.
Geographic Area: National
Purchase Order Financing: The Complimentary Financing Source:
- Who Is a Candidate for Transactional Financing?
- Purchase Order Financing in the Financial Spectrum
Purchase Order Financing: A Key Component to a Successful Turnaround
Case Study #1: Purchase Order Financing
for a Growing Business
Unique sales opportunities, or seasonal demands often require the assistance of transaction financing. A case in point involved a manufacturer of consumer goods, with an exceptional opportunity to do business with a major retailer. The company received an extremely large order, well beyond its expectations, and production capabilities. To complete the order, the company needed to find an alternative source of product to supplement its production capacity, which would require additional financing. An offshore manufacturer, able to provide product at the desired price points, was found, but insisted upon letters of credit, which involved more assistance than the bank would provide. Additional equity was an option but dilution of ownership at this particular time was neither advisable nor desirable. The market conditions were not right, and the timing of a public offer was premature. The bank was, however, interested in finding a solution to its customer’s temporary problem and offered to increase the credit line to finance the higher accounts receivable levels sure to result from the increased business. In addition, the bank introduced its customer to a transaction lender specializing in purchase order financing. The supplementary financing that was extended enabled the company to acquire the necessary finished inventory off shore, increase sales and profits, as well as establish itself as a reliable vendor to a major customer. In addition, the bank’s decision to expand the relationship with its customer to include the activities of a transaction finance specialist enhanced its own profitability and allowed it to retain a client it could have lost. Once the validity of the purchase order was confirmed and the necessary documentation received, the letters of credit were issued, and the inventory purchased. Specifically, purchase order financing enabled the borrower to finance100% of the cost of the inventory. Purchase order financing can play an important role in a variety of situations, from start-ups, to turnaround situations, acquisitions, and the financing of seasonal needs. Whatever the circumstance, candidates for purchase order financing have a common thread, a need to acquire inventory to satisfy outstanding purchase orders from credit worthy customers. While purchase order financiers provide capital to facilitate specific transactions, most relationships involve more than one business deal to fund additional inventory needs.
Case Study #2: Purchase Order Financing
in a turnaround Situation
A successful distributor found itself losing money. Significant growth over the past two years resulted in over expansion, operating problems, and a modification of the company’s relationship with its lender.
Losses required even more financing at a time when the company was entering its peak sales season and on the verge of profitability. Large purchase orders had been received from its present and expanding customer base. Additional financing was urgently needed to acquire inventory to satisfy the purchase orders, but the bank’s aggressive program could no longer be justified due to the previous losses.
Instead of a turn down, the bank agreed to continue with its original working capital line, secured by inventory and receivables, and suggested a transaction lender to provide the necessary purchase order financing. Although each of the lenders looked to different assets of the company, the combined efforts of the two is a classic example of the benefits derived from an alliance between bank and transaction finance. The additional capital that was made available through purchase order financing was sufficient to return the company to its former profitability.
Transaction, or purchase order financing, is not restricted to the situations above. In fact, this type of financing can be utilized in cooperation with bank debt whenever needs exceed the amount of money that a traditional lender can provide.
Unlike a primary lender, the relationship with a purchase order specialist is a short one, bridging the gap between short-term needs and long-term financial solutions. The purchase order financing serves a temporary need, such as when long-term funds may be difficult to obtain, or when a bank feels the need to modify its credit commitments. When this occurs, it is important to consider the benefits of working with this unique and innovative financing source. The borrower gains access to a greater availability of funds without disrupting its relationship with the primary lender, who not only maintains the association with its customer, but also enhances it by finding a solution to satisfy a customer’s total funding requirements.
Providers of purchase order financing have developed operating techniques, and a high level of expertise to operate effectively in today’s global economy. The availability of this resource explains why more and more lenders consider purchase order finance as a valuable supplement to meeting the needs of their customers. It also serves as a means of expanding its own services without additional cost or risk, by utilizing the facilities and capability of transaction finance specialists.
As globalization continues and foreign manufacturers expand their position to meet the outsourcing needs of their U.S. customers, purchase order financing will become a more frequent and acceptable source of supplementary financing.
- Purchase Order Financing for a Growing Business
- Purchase Order Financing in a Turnaround Situation
- Purchase Order Financing for a Consumer Goods Manufacturer in Distress