Not having the money to fund a customer order not only means losing out on this particular opportunity, it can mean missing out on many in the future. You could lose their future orders as well; not bringing in money because you have to turn down orders means less capital with which to grow , and get more customers. But, fortunately, if you find yourself in this position, you have options. Purchase order funding is one such route, and here are some frequently asked questions about this service.
What Is It?
Purchase order funding involves the funding company making a payment to your supplier on your behalf. They are basically lending you the money until the product is delivered to your customer, and once they pay you, you pay back the lender. They work with all sorts of business and do a lot or work in particular with import export funding. The cost will depend on various factors, but is typically 4 to 7 percent.
How Is It Different from Bank Financing?
When seeking financing from a bank, they are going to look at a variety of factors, such as your credit, financial history, cash flow and collateral. Companies that fund purchase orders are interested three things—the profitability of the order, the history and track record of your supplier, and the creditworthiness of your customer. They are not giving you a loan, they are advancing the funds to your supplier, and you are sharing a portion of the profits with them.
What are Minimum and Maximum Funding Amounts?
This will vary depending on the funding company, but typically a minimum order is usually between 5,000 and 10,000 dollars, and a maximum order in the millions-anywhere up to 10 or maybe more.
What Type of Orders Are Funded?
Funding companies only fund orders for goods, not services. In most cases, they must already be completely manufactured, and simply need to be delivered from the supplier to you to your customer, whether your business is . They may accept orders where production of the goods is necessary, or where slight modifications by your company are required. The latter type orders may be more difficult to get funding for.
How Are Suppliers Paid?
The funding company will pay your suppliers directly. The supplier will receive a letter of credit, which guarantees the funds, and that they will be paid once your customer receives the products.
How Long Does it Take to Get Funding?
That can vary by funding company, but typically, you can receive funding within seven to 10 days after applying.
Can I Use PO Funding for Transactions with Multiple Suppliers?
If your customer has placed an order requiring you work with multiple suppliers, no worries, you can still use PO funding to deliver the goods. Separate letters of credit will be sent to each. They must all be going to the same customer for the same transaction.
Can I Get Funding for Several Small Purchase Orders?
If you have multiple purchase orders for the same supplier, and it meets the minimum dollar amount set for the by the funding company, it will typically provide funding and issue one letter of credit. You cannot do this same combining with different suppliers.