Purchase order funding (PO Finance) can help your company fill large orders from one or more customers. Manufacturers and distributors of goods that are being sold to other businesses often use purchase order funding. Purchase order funding can also help a relatively small company fulfill government and large corporate orders. It can also help American companies that have their products manufactured in the United States, and countries like China or Mexico.
The best news is PO Finance is easy to set up and use.
How Domestic Distribution Companies Benefit from Purchase Order Funding
A Texas based distributor sold over $1 million worth of military grade computers to the U.S. army using purchase order financing.
Several years ago, Business Finance Solutions had a computer hardware distributor client. They needed purchase order funding. The company had an order for 2,800 military grade Panasonic Toughbook computers they were selling to the U.S. army. The value of the order was over $1 million U.S. dollars. The distributor had never sold so many expensive computers in one order. The government awarded the distributor the business because they gave a good bid and were a historically underutilized business (HUB). The large supplier wasn’t willing to give the small supplier credit to buy the computers, but the problem was resolved with purchase order funding.
As soon as the large supplier shipped the computers to the smaller supplier, the purchase order funding company paid the large supplier the discounted cost of the computers. The computers were shipped to the smaller supplier, who installed mission critical software on them. As soon as the smaller supplier delivered the final order of computers to the army, the equipment was delivered and the army was invoiced. A second finance company, using invoice factoring advanced 90% of the total sales price of all computers, paid off the purchase order funding company, and gave the rest to the smaller supplier. As soon as the army paid, the invoice factoring company refunded the 10% held back, less their nominal fee.
Without purchase order funding the small supplier could not have made this sale to the army. The small supplier was able to sell other large orders of computer hardware to large companies, school districts, state, local and federal government because they now had a purchase funding company and an invoice factoring company on their team.
Purchase Order Funding for Import Distributors
Sporting goods distributors and retailers often pay in advance for their products to be manufactured.
Many consumer and industrial goods are manufactured in China. Standard terms of sale for many Chinese factories is 50% of the cost of the order at the time it is placed, 25% in 30 days (on large orders) and the balance, including shipping at the date of shipment. It is not uncommon for goods being shipped by container to take six to eight weeks to reach their final port of entry, another two or three days to clear U.S. customs, and finally a week or more to reach the final warehousing destination. This means an end to end time of six to ten weeks, longer during the Christmas stocking season. This requires a lot of cash to be tied up while the goods are manufactured and shipped. During certain times of the year, a U.S. importer of Chinese goods may have many containers in shipment.
Business Finance Solutions helped an importer of sporting goods sell large quantities of baseballs to Academy Sports.
Purchase order funding helps small and lower middle-market importers because the purchase order funding company insurers the goods meet specifications before they are shipped, and by covering the long period between first order and receipt of goods at U.S. border customs.
Purchase Order Funding for Food Manufacturers
Packaged foods including frozen foods are good candidates for PO finance.
Purchase Order Funding can help small and middle-market food manufacturers that sell to large retailers like Walmart, Target, Whole Foods Market, or HEB Grocery. Some food manufacturers are “virtual,” meaning they use a co-packer or contract manufacturer, and some have commercial kitchens and large sanitary operations. Regardless, your company needs raw materials like glass jars or bottles, labels, shipping boxes, and ingredients. All of these items cost money and some ingredients or components may have a long lead time to obtain. Purchase Order Funding helps food manufacturers when they are growing very fast and have large orders from big retailers. Business Finance Solutions has helped numerous food manufacturers with purchase order funding for companies that sold Cuban sandwiches to Costco, frozen enchiladas to Walmart. Without purchase order funding our clients would not have been able to grow as fast as these large retailers could sell their products.
How Oilfield Chemicals and Supplies can use Purchase Order Funding
During the height of the shale revolution which peaked in 2014, millions of tons of ceramically coated proppant were manufactured in China and shipped to Texas, North Dakota, and other states where large numbers of wells were being drilled. Business Finance Solutions assisted one U.S. distributor of imported proppants by providing purchase order funding.
These examples are just a few of the types of industries and goods that can be helped by using purchase order funding.
If you think your company might benefit from having a purchase order funding company, give us a call. We will be happy to work with you to make sure you can make that sale and grow profitably!
Give us a call at 512-990-8756 or complete our online form for more information.