Purchase Order Finance

  • Definition:
    Purchase order financing is a short-term commercial finance option that provides enough capital to pay suppliers upfront for verified purchase orders (PO). Businesses avoid depleting cash reserves or declining an order because of cash flow challenges. It allows companies to accept unusually large orders and adjust the loan basis up or down quickly to meet needs. If order volume drops, there’s no long-term commitments, so they can stop using at any time.
  • How does it work?
    Your business receives a large PO from a new or existing customer. Your supplier needs upfront payment, but the customer invoice won’t be paid for 60-90 days after the shipment is received. This creates a classic working capital gap. We will verify the PO and immediately make an advance up to 50-70% of the purchase order.
  • Who qualifies for PO Financing?
    PO financing is designed for growing businesses that want to fulfill large orders but have limited access to working capital and/or experience irregular cash flow.
  • The types of business that usually qualify include:
    • Distributors
    • Wholesalers/resellers
    • Importers/exporters
  • How is it different than bank financing?
    PO financing is a short-term commercial finance option that provides capital to pay suppliers upfront for verified purchase orders. Businesses avoid depleting cash reserves or declining an order because of cash flow challenges. It allows companies to accept unusually large orders and adjust the loan basis up/down quickly to meet needs. If order volume drops, there’s no long-term commitments so they can stop using it at any time.
  • How much does it cost?
    The cost of financing purchase orders varies for each transaction based on risk(s). The monthly percentage is based on the lenders underwriting factor such as:
    • Distributor
    • Wholesaler/reseller
    • Importe/exporter
  • How much is it worth?
    What’s most important is mearing the cost against the risks and benefits. If you decline the order, how does this reflect your company’s growth? Many businesses believe it’s worth a percentage of their profit margin to make a sale that can be equivalent to an entire year’s worth of business.
  • How long does it take?
    From the time you submit the application and due diligence materials, it takes approximately one week to underwrite and anther week to establish funding and repayment mechanism. We have funded transactions in as quickly as 10 business days.

Funding

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