Purchase Order Loans and Letters of Credit

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Purchase Order Loans: When you need working capital to complete a customer's job - factor your purchase orders. Great source of working capital to grow your business.

Overview: Purchase Order Financing:

When a company receives an order to complete a large job or project, the company could find itself without the necessary working capital to complete the order.

Being unable to purchase the inventory or hire the labor needed to complete the order - means losing that customer's order and future business as well any subsequent profits for the job.

Further, not being able to complete an order already placed by a customer counting on your company could spoil your reputation in the industry.

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How It Works:

A Purchase Order Financing company (a factor) advances funds on your business's purchase order(s) - usually up to the amount of inventory, material or whatever the need to complete the order - including labor needs.

The advance provides the business enough working capital to complete the job.

Once the job is completed or goods are shipped and your customer pays, the purchase order financing company gets paid back plus a small fee while your business still realizes the profits from the completed order.

Many times, businesses receive orders or sales that they just don't have the capital or cash flow to complete. So, instead of turning down the business or pushing back the completion dates, use your purchase orders to get the working capital needed to complete the job - essentially leveraging your ability to find and close deals for the cash flow needed to complete them.

Purchase Order Loans can be used for nearly any purpose in your operating cycle from purchasing inventory and supplies to hiring that additional needed labor.

Purchase Order loans can also help your business bid on jobs that were out of your reach due to limited capital and/or cash flow.

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Benefits of Purchase Order Financing :

1. The ability to complete a job(s) or order(s) that your business may not have been able to without additional capital for inventory, labor, etc.
2. The ability to bid on jobs and projects that were outside your business's range due to limited cash flow, working capital and other resources.
3. Can be cheaper than a traditional bank loan or line of credit if used as short-term financing for short-periods as a cash low buffer.
4. Can help you pay your suppliers timely and further expand your availability with key suppliers,
5. Ensure timely deliveries to your customers (no business wants to miss a deadline),
6. Fulfill larger orders to increase your bottom line,
7. Grow your sales without increased bank debt or selling equity, and

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Letters of Credit:

At times, especially with overseas transactions (even if your company has the funds to purchase the necessary resources for a job or project) your suppliers may extend you credit on the purchase but require a letter of credit from a finance company or financial institution to guarantee payment.

This helps your company in the fact that you want to ensure that the goods you get, especially from an overseas supplier, are what you want and to your specifications. Thus, you do not want to pay in advance only to have to fight in a foreign country to get your money refunded.

Suppliers on the other hand want to make sure that you are good for payment, especially if they have to lay out a lot of capital to get you the goods or services you need to complete your project. For a small fee, a purchase order finance company can provide the necessary letter of credit needed to back your business.

Purchase Order Loans and Letters of Credit financing typically work hand-in-hand with accounts receivable factoring. All of which can provide your business the working capital it needs to meet current demand and grow into the future.

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