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Purchase Orders


Financing of Purchase Orders (PO's) is possible when there is a creditworthy customer involved and you (the client) needs up-front money to produce a product that needs minimal manufacturing. Purchase order financing is usually done in either one of two ways.

(1) There are some financing companies that deal with the transaction exclusively in house. That is, they front the client money, wait for an invoice to be issued, receive the payment from the customer for the invoice, take out their fees and front money, and remit the remainder to the client.

(2) There are others that work with a factor company in order to recover their money. (See Receivables Financing for more information on factoring.) That is the PO company fronts the money needed and then waits until an invoice is created for the product. They then turn over the invoice to a factor company that pays them back their front money and fees and the transaction is then dealt with as in a normal factoring relationship between the client and the factor.

Case (1) is more common for very large purchase orders. For example say a client has a PO for $500, 000 to provide some imported shoes to a large chain store. The client needs $300,000 to import the product but can't come up with the cash needed. The PO company provides the $300,000 to import the shoes, verifies the shipment and then releases them to the client for delivery. The client produces an invoice for the product. The PO funder takes out his fees and front money and gives the balance (profit) to the client.

Case (2) would be more common for small PO's. Often it is required that the client already be associated with a factor company for a PO funder to accept smaller PO's.


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