Purchase Order Financing - Canadian Solutions

Purchase Order Financing – Is it your solution to growth and working capital challenges? Canadian business owners and financial managers are always challenged when they are required to fulfill customer orders or new contracts where pre payment of a significant amount of goods is required to ultimately complete a large order or contract. Many times these new orders or contracts represent the potential start to a large relationship that has the ability to grow large revenues and profits for your Canadian firm.

Is there a solution? One that you might want to consider is purchase order financing. Under this type of financing, (also referred to as ‘P.O.Financing ‘) payment by the finance firm is made directly to your suppliers for your order or contract.

This allows you to complete the order, generate receivables from that order, and of course collect from your customer. The financing charge is typically in the 3% range, so there needs to be a clear indication that your firm has the gross margins to support an additional cost in the 3% range. Therefore firms with higher gross margins are great candidates for purchase order financing, and they are less so if they are in a low margin commodity type business. It’s all about the gross margin!

It is not hard to imagine why suppliers are asking for upfront payment. The typical reasons that we hear from our customers is that they:

- have exceeded the suppliers authorized credit limit for their firm
- the supplier is oversees and does not want to ship or commit capital to a firm in another country
- Your firm if new and has limited financial information or financial wherewithal to arrange financing of such magnitude

Remember also that your firm has what is known as a cash conversion cycle ( every firm has one ) There is a large of often 2-3 month from the time you receive orders, build and ship inventory or product, and then wait 30 days ( or longer!) to collect from your customer . Purchase order financing is a solid solution to your cash conversion cycle.

In putting together a purchase order financing facility we stress to clients that this is very much an alternative financing scenario, but it is clearly one that offers you a solution that traditional Canadian banking or lending would not offer.
Therefore your firm should be able to ensure that you can demonstrate the viability of your customer and that you can fulfill the order or contract.
One of the other advantages of purchase order financing is simply that from start to finish it can be set up in approximately 14-21 business days, assuming your full co operation on applications forms, backup info, etc. Most Canadian business people recognize that financing of a certain size in a traditional banking or term lending environment might take significantly long to complete.
In summary, purchase order financing is a unique niche within the area of business financing. If you are new, or not knowledgeable about this type of financing speak to a credible and experienced and trusted business advisor who will guide you through key areas of P.O. Financing including such things as minimum amounts that can be financed, credit application information, and the standard industry fees / rates.