Purchase order factoring is a technique certain companies use in order to make transactions with different kinds of goods.
As a reseller, it is likely at some point that you will find a supplier that wishes to sell you goods so that you can sell them to other customers. However, it is also quite possible that you will not always have all the capital you need in order to pay that supplier upfront, which is often a requirement. In order to cope with this, purchase order factoring is one viable you wish to pursue.
In such factoring, you can contact a company, called a factor, that will assist you in financing the purchase of the goods you are trying to obtain from your supplier. The factor will purchase the goods on your behalf so that you can then resell or distribute them to your customers, who will then pay you, and you can then pay the factor. Essentially, using purchase order factoring will increase the total number of middlemen and transactions in the selling process, which will cost you extra but may be worth it in the long run.
When deciding whether or not to assist you with purchase order factoring, the factor will first look into the circumstances involved:
1. How credit worthy your customers are. If the customer(s) you’re intending on reselling to don’t appear to be likely to pay a reasonable amount back to you, it’s fairly unlikely that the factor will get paid back in full either.
2. Most factors won’t work with companies that are seeking to obtain less than $100,000 in purchase order factoring.
3. Your company should have a profit margin of at least 10% to be considered by most factors.
4. Your company also needs to be a reseller or distributor of finished products.
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