Purchase Order Financing Question

lilooliloo Posts: 6subscriber
edited September 2007 in Startup Funding
I am looking into using purchase order financing in the future once I get my purchase orders.
What can I do now as I am starting my company to be attractive to the factoring financiers when I need them?
Is it ok to plan on using POF? Or is that usually a fall back plan when you have run out of money, or are growing too fast for your funds?

Comments

  • robertjrobertj Tampa Bay, FloridaPosts: 0subscriber Member
    Purchase order financing typically covers the cost of the materials to produce the product (for which you have an order) and maybe some of the direct labor involved in making the product. It can be very useful in certain situations - like when you receive an unusually large order from a very credit worthy customer.
    However, I wouldn`t suggest planning on it as the only or primary source of funding - long term.
     
  • lilooliloo Posts: 6subscriber
    My product is manufactured and shipped from a third party factory. They are capable and ready for the volume, so it is just a matter of placing the order. I just won`t have that type money on hand when the first BIG Order Purchases come in.
    Marshal, I found your blog very usefull. I was looking for a contact form so I could ask you about this, but lucky me, you found me!
    So when would the right time be to use a POF?
     Would it work to have it "lined" up before you began working with the brokers and stores and use it the moment you got the BIG PO. So you knew you were covered when telling these stores you are able to provide there large quantities?
    Thank both of you for your help!
     
  • MingMing Posts: 0subscriber
    Lilo:
    We are a financing company specialized in PO financing which fits your situation perfectly - a big order and need fund to purchase to fill in the order. We can issue a LC to your vendor to help your purchase (sure, they will like that). All we need is a legitmate order from a creditworthy company.
    Please give me a call @ 626-322-7898 or e mail me at [email protected]</A> to discuss your case further.
  • sportsguy7sportsguy7 Posts: 2subscriber
    Hello everyone,I am looking for a way to pay for product orders from 4 different suppliers. I have weekly orders at this time for each supplier.I want to buy more of the popular items so I can give more customer service.Right now my  problem is getting faster shipping.Thanks for any suggestion,
  • MingMing Posts: 0subscriber
    It is quite hard to finance an ebay retail purchase. Financial institutions/Banks have to look at your business`s balance sheet to determine if they can lend you money, or on your personal financial status.
    If you are a wholesaler or distributor and have orders from big companies, we can help you to purchase.
  • MingMing Posts: 0subscriber
    Lisa:
    There are two type of financing - Balance Sheet or Off Balance Sheet.
    Bank loans are rely on your company asset and/or your personal asset and/or your credit score. Tranditional balance sheet financing.
    We, however, provide Off Balance Sheet Financing, ie do not rely on that so much. But our financing only extends to transaction related to goods/products, not services, for we can`t determine if the service provider can perform. If it is product/merchandise Purchase Order, we then can lend against that.
    In your case, I am afraid that we can not help. Supplying such contract to your banker certainly will help yet won`t be a decisive factor for them to make a loan.
    I suggest you to talk to a banker on more details.
    Good luck.
  • RoblueRoblue Posts: 0subscriber
    Both P.O. financing and factoring are useful tools to fund fast growing companies when traditional sources of financing are not available.  It`s OK to plan to use them provided you know when and how to use them and understand their cost.
    P.O. financing is used to cover the cost of goods sold before delivery of the product.  Factoring is used to accelerate the cash due from invoices generated after the delivery and final sale of goods and services to creditworthy customers. 
    While you don`t have to use P.O. financing to use factoring, to use P.O. financing you must use factoring or arrange for some other "take-out" financing once the goods and services are delivered and the invoice is generated.
    P.O. financing may be a bit challenging to get for a startup - depends on who is actually producing and delivering the goods and services.  It will be easier if you`re simply taking orders and a third party will be responsible for manufacturing and fulfillment/delivery.
    Factoring is more readily available for start-ups as the factor is primarily looking to the credit strength of your customer buying the product. 
    As for relative cost, P.O. financing can typically cost from 3.5% to 5% per 30 days.  P.O. financing can cover up to 100% of cost of goods sold.  Factoring is usually less expensive and ranges from 2.5% to 4% per 30 days.  Advance rates range from 60% to 85% of the face amount of the invoice.  Due to the cost of these funding solutions, you want to make sure that your gross margins are pretty high as the interest costs associated with these products could eat up about 12-15% of your margin in a 90 day cycle.Based on your post, this start up funding approach is more applicable and limited to a business that is into retail sales.Does it apply to any other type of business besides a retail business?
  • MingMing Posts: 0subscriber
    Roblue:
    While Marshall`s description of PO is great, there are some little inaccuracies here.
    First of all, PO Financing & Factoring are quite related financing types, but not necessary to have each other in one transaction. In our line of business, we can work with factors or elect to sit until your customers pay. Take-out is not a MUST. Some Factoring company provides "fake" PO Financing -- using factoring credit line to provide funding for your purchasing need. It does not give me more working capital although it helps you turn the capital around faster. We at Horizon, bring an extra credit line to you based the Purchase Order in hand, which is hardly to qulifiy as "asset" to borrow from conventional banking/financing.
    Second, both PO financing and Factoring is not that high. Based on your PO quality or receivable quanlity, PO financing is quite normal to be around 3% per month and factoring can get to as low as 1%~1.5% a month.
    Third, we have been financing importers, distributors and manufacturers. However, retailer and service provider are another breed. In the retailer and service provider part, We can`t be ensured that the product will be sold and service will be provided. Hardly I have seen any PO financing company lend against those.
  • MingMing Posts: 0subscriber
    Marshall:
    You are right on this point.
    While I was speaking from our daily practice, you are giving SUN fellows an education on how it works. Most of our clients has more track record in business for years and has been supplying big chains like Wal Mart, Target, Costco, not to forget their PO are quite sizable (typical $500k per shipment).
    On that basis, the PO financing fee and Factoring fee are much lower comparing to the situation that SUN people will have to face. I dont mean to mislead guys here, hopefully providing some real life referrece on how PO financing might look like in the upper range.
    In fact, PO Financing is quite a non tranditional, flexible form of financing that may structure according need. All our cases are different from other another. We always sit down with our clients/prospects to find a solution to serve the purpose best.
  • SidneywahSidneywah Posts: 0subscriber
    Rob,
    Just in case purchase order financing does not work for you, another start up funding resource that I have used is www.thesnaploan.com.
    It works with start up business owners who have low credit score and no collateral.
    They are pretty fast with the response to your application, at least they were in my case.
    I would give them a try.
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