If you are a small distributor, and you have a purchase order from a customer, and lack the funds to pay for the order, are experiencing growth and not in the position of creditworthiness with the supplier or a manufacture and have an order so large you don’t have the money to manufacture it, then purchase order financing may be an immediate solution. can’t get extended payments from your supply source or in the case of manufacturing you don’t the money to manufacture it have an order that is so large that you can’t make immediate payment for it then

In order to use this powerful and immediate capital creating option you need:

  • Purchase Order: Have a firm order for goods from a very creditworthy customer.
  • Manufacturing Track Record: Have the proven track record (history) of being able to manufacture the goods or be able to purchase those goods from a reliable manufacturer.
  • Meet Specifications: Are capable meeting manufacturing specifications and delivery terms defined or described in the purchase order.
  • Take Out Financing: Have financing or a payment arrangement in place to "take out" the purchase order finance company once the goods are delivered to the customer. (This is usually arranged through a factor)
  • When payment is collected from the reseller or distributor that submitted purchase orders from its customers, the purchase order financing company will be reimbursed for its outlays and collect its fee. Purchase order financing is a variation on factoring that has been increasing significantly within the last 20 years.
Typically, a Purchase Order Finance Company will originate a letter of credit for the manufacture and delivery of the goods to meet the purchase order. It oversees the manufacture and shipping of the goods, making sure they meet specifications. Once the goods are delivered, the customer is then invoiced, the invoice is factored, and the factor pays off the purchase order finance company out of the initial invoice advance. This process is generally used to finance offshore manufacturing as well.

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