Purchase order (PO) finance is the financing tool of choice when you have the order and the supplier, but lack the money to pay for the order. This solves the problem business owners often face. We at Jigsaw Capital often hear from business owners who have great customer relationships, but whose success has led to an inflow of orders for which they now need additional investment capital.
Purchase order finance will allow you to increase your turnover and increase your profits. The magic of purchase order finance is this: you can get financed based on the strength of your end buyer; THAT is the key to getting the deal done. Your own business financial picture is taken into account, of course, but your experience and the customer's credit profile are of much higher relative importance.
Depending on the deal's profit margins, you may need very little of your own cash to do the deal. It is possible that almost all of the supplier's cost will be covered by the finance group.
Purchase order finance will let you bridge over the mismatch between your supplier's payment terms and your buyer's payment terms. Even if your supplier takes 90 days to ship and your customer takes 60 days to pay, a 150 day turn on the order, we have ways to help you execute on the order.
PO Finance Process
Once there is a confirmed purchase order, funders will determine how much of the order they will finance. Then if the supplier is overseas, they will likely open a letter of credit in favor of the supplier. Sometimes if the supplier is domestic, different finance terms can be arranged for the supplier.
At the point that the goods have been delivered to the customer and you can invoice your customer for the goods. This is an important step, because you can now convert purchase order finance into invoice finance. PO finance is perceived as a riskier form of financing, so the funder will charge more for that part of the financing. As a result, it is always in your interest as the business operator to complete the PO portion of the finance quickly.
We often see cases where Chinese suppliers take 90 days to ship the order. PO finance is based on the amount of time the supplier's LC has to be open, and it can get very expensive for long lead time orders.
This is another place where we can add value to your business operations. We have a money-saving strategy for financing long lead time orders and protecting your profit margins.
Work in Progress
Work in progress is by far the trickiest part of financing a client's purchase orders. Many finance companies do not want to touch work in process, especially if the work is being done at the client's wholly owned facility.
From the point of view of efficient capital usage, we break work in progress down into its component parts: acquisition and delivery of raw materials; processing raw materials into finished product; and delivery of finished product to customer. We work with finance companies who will finance work in progress by third parties. We also provide a custom-designed solution to aid the business owner in financing 75 to 90% of the total process, so that the client's capital is freed up for almost all of the production cycle.
If what you seek is something beyond simple purchase order finance, then you may look at Small Business Finance, where we present some unusually flexible financing capabilities.