Requirements of Purchase Order Financing
Every company needs cash to operate. However, sometimes, cash is limited. Purchase order financing can be an effective solution.
What is Purchase Order Financing?
Purchase order financing is a contractual arrangement between a supplier and a third party wherein a financial third party gives a supplier funds to pay a customer’s purchase order.
After a customer places a large order that your company can’t fulfill due to lack of cash, you contact the purchase order financing lender and submit the order. The lender approves the financing, pays your supplier and the order gets fulfilled. The supplier sends the required order to the customer. The company invoices the customer for the goods provided and the customer remits payment directly to the financing company. The financing company deducts its fees and sends the balance to your company.
The Pros of Purchase Order Financing
Enables a supplier to accept orders that it wouldn’t otherwise be able to fulfill, including larger orders than normally accepted.
No need to turn away customers due to a lack of funds to fulfill their orders.
No need to fret over collecting supplier payments.
There are no monthly finance repayment installments.
A supplier can qualify even if it has poor credit.
It can provide fast funding after a third-party relationship has been established.
What Are the Requirements for Purchase Order Financing?
Purchase order financing can only be used by distributors, resellers, outsourcers, and wholesalers.
The requirements include:
The borrower must be in good financial condition and have a positive reputation.
The supplier must have a track record of quality and on-time product deliveries.
The purchase order must be non-cancelable.
A transaction must have at least a 20 percent gross margin.
$50,000 is normally the minimum sale amount for an approved transaction.
Commercial customers must be creditworthy.
Seek Experienced Financial Assistance
Contact TCF Capital for a wide range of financing solutions, tailored to your needs to help your business growth dreams come to life.