Purchase Order Financing is a tool used by companies to fulfill a supplier contract for a specific product, not in its inventory. Purchase Order Financing is commonly used by companies that do not have the liquidity, line of credit or other resources or choose not to tie up available cash to induce a manufacturer to produce a specific product in a predetermine quantity and ship it to the company’s customer.
Purchase Order Financing companies do a deep dive into the borrower and customer’s business practices, credit, and payment history to determine both parties’ creditworthiness. They also evaluate the manufacturer to minimize the potential losses arising at each step in the transaction. Once the lender is satisfied, the risk is minimized to an acceptable point; the funding request will be approved.
Upon approval, the lender may advance up to 100% of the funds needed to fill (produce and ship) the customer’s order. However, instead of writing a check to the company’s business or owner, the lender, through a predetermined payment arrangement between the Manufacture and Lender, Pays the invoice and closes that section of the transaction.
After the order is delivered, the company sends an invoice to the customer, directing the client to send payment to the lender. Upon receipt of the customer’s payment, the lender deducts the advanced amount paid to the manufacturer and service fees to use funds and deposit the payment’s balance in the company’s checking account.
Purchase order Financing is not complicated, but it takes skill and experience to negotiate complex financial arrangements. K-WAM’s professionals have the knowledge and skills to guide you through the maze of purchase order financing. For additional information, send a message to our team, Click here.