PURCHASE ORDER FUNDING

Purchase Order Funding

What if your business has little to no receivables to factor currently? What if you have purchase orders and not enough cash to fulfill them? Purchase order funding may be the answer.

Combined with factoring, purchase order funding can be a very powerful tool. It can enable your business to make a profit without using any of your own money for the cost of goods sold.

In Conjunction with Factoring

Typically, purchase order funding is done in conjunction with factoring. Once the product is delivered, an invoice is generated and factored. Part of the proceeds from factoring go towards paying off the purchase order financing.

Higher Risk

There are more risks involved with financing purchase orders than factoring. Problems can occur with the manufacturing, delivery, acceptance, and cancellation. Hence, the cost is higher than factoring. Also, unlike the multitude of factors that exist, few companies specialize in financing purchase orders exclusively.

Higher Profit Margin

Because of the cost, PO funding is only feasible if your product has a very high gross profit margin.
The margin has to be high enough to easily cover the cost of financing both the PO and the factoring. Also, there needs to be enough profit left over for your company to make the opportunity worthwhile.

Wholesale Level Common

The most common form of purchase order financing is on the wholesale level for finished goods. A typical scenario involves a company that is importing product from overseas, bound for retailers in the U.S. That is the easiest type of PO funding to qualify for. Getting funds for imported products that require some assembly prior to being sold is more difficult. It is nearly impossible to get PO funding if most of the manufacturing is to take place in your facility.