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Secrets Of Purchase Order & Contract Financing In Canada
OVERVIEW – Information on purchase order financing in Canada. Trade finance solutions can finance your PO or Contract opportunities when traditional financing can’t be achieved
Purchase order financing is a great tool for firms that have unusual purchase order and contract sales financing needs but are potentially unable to access traditional financing via banks or their own capital resources within their firm. In many cases firms are smaller, or sometimes early stage - in some cases it's just too much success via that large order/contract!
So how does it work? And does your firm qualify. Other client questions include:
How does this type of funding work >
What are qualifications and costs?
Typically Canadian firms looking for this type of financing are distributors, manufacturers, or perhaps wholesalers. A variety of industries in Canada have access to this type of financing, but those certainly tend to be the typical firms needing assistance.
Your need for purchase order financing arises out of what we call the classic working capital gap. What do we mean by that? It's a case of your suppliers requiring payment either up front or within 30 days, with your firm unable to generate those funds for payment and therefore unable to fill large purchase order and contracts in your favor . That's the classic working capital conundrum.
Your supplier is asking your for payment in advance or 30 days, and you won’t receive payment for at least 60-90 days, perhaps more depending on your build cycle, etc.
Naturally no business owner/financial mgr wants to turn down orders or lose competitive market position.
The obvious solution for low cost large amounts of funds are Canadian chartered banks, but our observation is that many firms simply can’t satisfy the banks requirements for this type of financing to occur. If your firm is growing, profitable, has a clean balance sheet and strong historical cash flows and history you of course have a solid chance of meeting bank requirements. But, at we said many firms can't satisfy all those requirements of traditional finance.
When you access p o financing you can have comfort that your suppliers will be paid, and at the same time you generally have access to all the funds you need. Typical purchase order financing applications take anywhere from 2-4 weeks to complete and involve basic financial due diligence on your firms ability to fulfill the order, who your customer is (they must be credit worthy), and your proper supplier sources must be identified and vetted.
So, who exactly qualified for this type of financing? Naturally your company must be in possession of a contract or order that is not cancelable by your client. The PO finance firm arranges to pay your suppliers directly, that alleviates all you cash flow and working capital concerns.
The transaction is completed when you ship the goods and your receivables are generated on the sale. It is at this time the purchase order finance firm expects to be paid, and this is traditionally handled by your firms monetizing of its receivable via a bank or factoring facility. Factoring and A/R financiers are great partners to the P O financing strategy, because use of them guarantees payment to your P O firm.
Let's cover off a couple tips and secrets around the cost of purchase order financing - It generally is in the 2-3% per month range in Canada, and that means you have to have solid gross profit margins in order to be able to sustain the finance charges.
Let's be honest though - let’s say your firm has been doing 750k of revenue for the last couple years and you finally get the large order from a major customer for 1 Million dollars. Wouldn't you give up 2-3 % of your profit margin in order to make one sale which is the equivalent of your entire year's business? We think you should positively consider that! Who wouldn't!
Clearly the higher cost of this type of financing covers off the complexity and risk that the P O finance firm takes in paying for goods , waiting to get paid, and having the belief that your firm will fulfill the contract order .
It has been our observation with certain clients that your successful completion of a purchase order finance deal typically significantly enhances your relationship with your major suppliers and of course customers, that's a secret benefit that is intangible but invaluable at the same time.
Is P O financing for everyone? Maybe not. Could it be possibly the solution to major working capital needs if your business is growing and can't be financed traditionally - we certainly think so?
Seek out and speak to a trusted, credible and experienced purchase order finance expert to explore your options.
Stan Prokop - founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 13 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info & Contact Details :
http://www.7parkavenuefinancial.com
7 Park Avenue Financial
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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