30 June Grow Your Import or Distribution Business With PO Financing
As Importers and Distributors, your company can have major growth pains if you are receiving orders at a greater rate than your available working capital and your suppliers demand proof of funds before shipping or even manufacturing your products. There can be major cash flow implications typically, when the company may have to make an initial downpayment on its order upfront, and then settle the difference before shipment, or on proof of shipment. When the importing firm re-sells the product it will likely not get paid until a month or two after issuing the invoice along with the goods.
Some companies will consider taking out a business loan to cover the purchase of products which they know will be sold as soon as delivered. This will likely require some form of security and/or a credit history. It will also mean paying fees and interest for months and even years to come.
Purchase order (PO) financing is a short-term financing tool designed to help your business grow. For companies receiving finished or near-finished goods from their suppliers, PO financing solution helps you meet supplier requirements and bridge the sometimes extensive gap between when a product is loaded for transit and when a customer receives and pays for it. Upon approval, financing is available immediately, allowing you to purchase your product quickly and get the production/shipping process underway. PO financing covers up to 100% of the cost of product, allowing you to purchase pre-sold product quickly without drawing on your bank line of credit.
Your financing solution is based on the quality of your POs. You’ve worked hard to nurture and develop a deep customer relationship and now the credibility of your customer base can be leveraged to finance the future value of your POs.
Works in conjunction with A/R factoring
Typically, PO financing works in combination with Liquid Capital’s A/R factoring solution, which kicks in once the actual sale to the customer becomes final. A/R factoring—which provides you with working capital financing based on the value of your accounts receivable —is used to pay off your PO financing obligation.
There are two types of A/R factoring – Recourse and Non-Recourse. Recourse Factoring can be used if your clients are financially well positioned. This form of factoring offers lower fee because of less risk but you need to agree to buy back noncollectable invoices. With non-recourse factoring the fees are higher but the lender cannot come back to you for payment if the customer fails to pay.
A/R factoring is not borrowing and no debt is created so your company is not under any re-payment obligation. This is a very important point as factoring transactions do not increase the liabilities on your business balance sheets. Essentially you are selling the invoices for which you are already entitled to the payments.
You can use the proceeds of A/R financing for any business needs such as undertaking your next import or distribution deal. A/R financing will free-up capital and shorten your supply-chain cycle considerably. With new orders and new faster payments for suppliers your incomes and profits can increase considerably.
PO financing and A/R factoring can help you execute orders which otherwise the business might not have been able to; and it can be a key factor in your ability to grow.