Purchase order funding is used by resellers that find good opportunities to make a profit through a supplier, but for some reason don’t have the financing necessary to pay the supplier upfront, which many require. Alternatively, the supplier may not require that you pay them upfront, but the financing options they offer you are simply not viable from your position. You could pass up such an opportunity, but before you do you may want to consider purchase order funding.
Purchase order funding is obtained through a company, called a factor, that currently has the necessary capital to purchase the goods you’re seeking to buy and resell. Once the factor agrees to help you out, they will pay your supplier upfront, and then you will be able to resell or distribute the goods out to your customers. If your company is an exporter doing business overseas they can also obtain a letter of credit from a bank to guarantee that the process goes smoothly with both supplier and reseller.
Most factors do have some requirements that must be met in order for you to get purchase order funding. One of the most important things they consider is the creditworthiness of your customers. If your customers are perceived as not being credit worthy, the factor may be hesitant to provide you with funding. Also, your company must be a distributor or supplier of goods. Usually, you will also need to be looking for at least $100,000 of purchase order funding, or you’ll be turned down. Some factors will also not work with you if your profit margin is under 10%.
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