Purchase order financing helps Canadian distributors and resellers that have large purchase orders and need money to pay their suppliers. It can cover the order’s supplier expense, enabling you to fulfill it and book the revenue. Read “What is purchase order financing?” and “How does PO financing work?” to learn more.
Purchase order financing has several advantages. These include the following.
Benefit #1: It is available to small companies
Purchase order financing is available to small and midsize companies. This solution has simpler qualification requirements than conventional loans and similar products. Consequently, it is a great alternative for small companies that are growing quickly.
Benefit #2: It helps finance large orders
The biggest benefit of this program is that the line can finance large purchase orders. This removes the limitations imposed by your current working capital. It enables you to fulfill orders that exceed your capitalisation.
Benefit #3: It adapts to growing companies
PO financing lines are adaptive and don’t have a limit per se. This is an important advantage over loans and lines of credit that typically have credit limits. The line’s availability is determined by the following:
- The creditworthiness of your client
- The reliability of your supplier
- The risk of the order
- Your ability to execute the order
Because of this, a small distributor/reseller with good clients, reliable suppliers, and experience in the industry can qualify to finance large transactions.
Benefit #4: It has simple qualification requirements
Purchase order financing is easier to get than other options. Finance companies typically evaluate your company and its orders.
Your order must:
- Be larger than $100,000
- Be for products only
- Use a 3rd party supplier
- Be from a commercial client
- Have a 20%-30% gross margin
- Not be for consignment (or similar)
Your company must:
- Be incorporated
- Have sold this product before
- Not have serious problems
- Not have it’s A/R encumbered
Benefit #5: It can cover all/most order cost
Most purchase order financing lines can cover as much as 70% of what you will invoice your client, up to your supplier cost. Consequently, this solution can finance your entire supplier cost if your order has gross margins over 30%.
Note that the transaction’s risk profile can affect the percentage the finance company can cover. It’s best to assume your company may have to fund a small portion of the order.
Note: You can calculate your approximate gross margin by using the following formula:
GM = (client payment – supplier cost)/(client payment)
Benefit #6: It can be deployed quickly
Lines can be deployed quickly, usually in less than two weeks. However, quick deployment depends on your ability to provide the financing company with all the required information.
There are circumstances beyond the financing company’s control that could delay funding. It’s a good strategy to plan for this possibility in your deployment timeframe and not wait until the last moment to seek financing.
Get more information
Are you looking for purchase order financing? We are a leading finance company in Canada and can provide you with a competitive quote. For information, get an online quote or call (877) 300 3258.