A little known but extremely powerful business financing tool, purchase order financing gives business owners the equivalent of a sizable down payment on new orders, providing working capital financing to fuel growth.
October 14, 2010 – Fredericksburg, VA — (http://www.smart-business-financing.com/purchase-order-financing.html) With traditional forms of business financing in short supply, smart business owners are turning to alternative financing strategies to move their companies forward. Purchase order financing is one of the best methods available to obtain working capital quickly without selling equity, incurring debt or additional credit risks.
What is purchase order financing?
In its simplest form, purchase Order Financing is the financing of an order or contract rather than the delivery of a finished product. It is typically a short-term transaction, lasting 60 days or less.
The company receiving a purchase order (the “client”) assigns it to a third party cash flow business, which then pays the client’s suppliers for raw materials or goods needed to fulfill the order. Once the order is completed, the firm that provided the purchase order financing is reimbursed, collects its service fee, and the balance of the payment is forwarded to the client.
“For a business that wants to accept more and larger contracts but lacks the working capital financing to fulfill them, purchase order financing offers an excellent solution,” says Mike Lieber of AEGIS Financial Solutions, Inc., the creator of Smart-Business-Financing.Com. “It pays for the manufacturing of goods and the raw materials needed to deliver more of your product to an expanded market.”
According to Lieber, purchase order financing is one of two types:
In a finished goods transaction, the client company never handles goods. Typically, the product is shipped directly from the supplier to the end customer.
A non-finished goods transaction gives possession of raw goods or semi-finished materials to the client for completion and shipment to the end customer.
A finished goods transaction is easier to finance than non-finished goods, which requires the client to demonstrate the ability to complete the processing or manufacture of the product for final shipment to its customer.
Purchase order financing works in tandem with account receivable factoring. When the client company generates an invoice to its customer for payment of the order, another type of cash flow business – an invoice factoring company – advances funds to the purchase order finance company to pay its lien and fee. Once the invoice is paid in full, the invoice factoring company collects a small fee for its services and forwards the balance of the funds to the client.
In many cases, invoice factoring companies will handle the entire process.
“The purchase order financing process is really quite simple,” says Lieber. “First you need to get a purchase order from your customer, secondly you need to find a reliable supplier for your products, and lastly place the order with that supplier. Your factoring or purchase order financing company handles all the transaction details for you.”
Another huge benefit of purchase order financing is its utility in international business transactions. A common requirement in a purchase order financing transaction is a letter of credit, particularly in cases involving offshore contract manufacturing. Foreign manufacturers will generally require payment in full before goods are shipped, so a purchase order financing company will:
• Issue a letter of credit to guarantee payment to the foreign supplier
• Inspect the goods prior to shipping
• Pay the foreign supplier when required
• Arrange for shipment to the customer (finished) or client company (non finished)
For the company that desires to sell internationally but finds the financing too complicated, purchase order financing blasts away international trade barriers, opening up expansion opportunities throughout the world.
About AEGIS Financial Solutions, Inc.: Since 1998, AEGIS Financial Solutions, Inc. has utilized the fast, flexible and powerful resources of the cash flow industry and asset-based finance techniques to solve business financing problems. Helping people get money when they need it most, without bank loans, is what we do best..
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
PH: (540) 548-2270