Purchase Order Financing
Purchase Order Financing
Purchase Order Financing For Your Manufacturing, Domestic or International Trade Financing Needs:
Financing from $10,000 to $50,000,000 on a transaction by transaction basis.
Distribution or service purchase orders considered as well as end stage production.
Fees determined on each individual purchase order.
Assistance in contracting and negotiating with suppliers.
International and Domestic Letters of Credit available.
Benefits of Purchase Order Financing include the following:
Allows companies to grow without increased bank debt or selling equity
Helps ensure timely deliveries to customers
Increase market share
Allows companies to make larger profits by fulfilling larger orders
Fast flexible funding
These are just a few examples of the transactions Nations Business Banc can facilitate financing.
Industry Location Type of Deal Deal Size Women’s Apparel Company New York Import Financing $22,000,000 Electric Turbine Modernization in Mexico Mexico Project Financing $5,250,000 Sale of Holiday Decorations to Major Retailers Massachusetts Cross Border Production Financing $2,500,000 Steel Plant to China Ohio Export Project Financing $10,000,000 Baked Goods Manufacturer Oklahoma Domestic/Import $3,200,000 Women’s Apparel Distributor New York Domestic/Import $2,000,000 Electronic Parts Broker California Domestic $3,200,000 Women’s Formal wear Manufacturer Texas Import/Domestic $950,000 Hi-Tech Equipment Manufacturer Texas Domestic/Export $3,600,000 Home Furnishing Manufacturer California Import $4,000,000 Fiber Optic Manufacturer Texas Domestic $800,000
WHY IS IT NECESSARY?
As an example, my company manufactures $1,000,000 in widgets every month. The orders come in and I am able to fill each order. However, one of my customers calls me and states that he/she is looking for $1,000,000 in widgets for the next month. Obviously I want to fill this order and basically double my production and profit for that month. This is an important customer and will move their orders to one of my competitors if I am unable to meet their needs.
My problem is that I am geared for $1,000,000 per month and my financial position allows for that level of production and very little more. My line workers are currently working at their maximum capacity and any additional production would entail hiring additional workers and/or paying the current staff overtime to meet this order. If I work my employees beyond their normal working hours this will increase my utility costs also. More raw materials will be required to fill the order. All of this requires an influx of capital to keep on top of these additional costs.
I have already pledged all my assets for other lending that my company has received and am just at the end of my borrowing capacity. What can I do?
SOLUTION FOR LACK OF CAPITAL
My customer is willing to issue a written purchase order for the goods needed. Therefore, I have a guarantee of selling the widgets after production.
Purchase Order Financing can be my solution. I borrow funds from the PO Financier to cover my up front costs to manufacture the additional widgets. The PO Financier uses the Purchase Order as their security for the loan.
REQUIREMENTS FOR FUNDING
1. The minimum gross profit margin will be 50%.
2. Order to delivery time to be no more than 6 weeks.
3. The order is to be shipped all at one time so that entire amount of the invoice generated will be due and payable.
4. PO Financier will perform due diligence on both my customer and my company to determine:
a. My ability to produce and deliver the goods
b. My customer’s ability and willingness to pay for the goods upon delivery.
5. PO Financier charges 4.5% interest per month until total advance is paid back.
BENEFIT TO CLIENT
I have the ability to meet the order from my customer thereby retaining the customer and substantially increasing my profit for that time period.
WHAT HAPPENS WHILE CLIENT WAITS TO BE PAID BY CUSTOMER?
The PO Financier is charging me 4.5%. This is a huge financial burden and can be offset very easily. When I deliver the widgets I generate an invoice to my clients which is all due and payable as all goods have been delivered. My customer passed the due diligence investigation of the PO Financier because they always pay their bills. My problem is that the customer takes 60-90 days to pay. This would cost me 13.5% on the money borrowed from the PO Financier. So what can I do? Factor the invoice.
Once I have sold the invoice to the factor I receive 70-90% of the invoice value as an advance and can easily pay back to PO Financier as they have only advanced based upon a gross profit of 50% so I will be 20-40% ahead after paying the PO Financier. When my customer pays the invoice I will receive the balance of my reserve account after paying the discount fee to the factor.
To make this even more convenient, many PO Financiers also do Factoring and vice versa. So you are dealing with only one company on both transactions and the due diligence process is simplified as it has already be completed prior to funding the PO Financing.
STEPS IN THE PROCESS
Purchase Order from customer for $1,000,000
Request for $500,000 from PO Financier resulting in 50% gross profit as required by them
Due diligence in both manufacturer and customer
Advance against PO
Manufacture of goods
Delivery of goods and invoice generated
Invoice offered to Factor
Due diligence by Factor
Sale of invoice to Factor and advance to manufacturer
Manufacturer pays off PO Financier