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We have been getting many inquiries in regards to po financing, especially a large demand of buyers wanting mask and medical supplies and other related supplies that involve overseas suppliers.
Unfortunately these type of transactions rarely mature due to the risk involved in the complete transaction flow and all the moving parts that have to fall into place to make a successful transaction happen while diminishing risk for the lender.
In summary, my experience in funding purchase orders from finished goods, light assembly and production finance. The following type of transaction is usually a recipe for disaster:
"It always seems that when you have an item ordered for the first time by a buyer, ordering from a supplier they have never dealt with, that's ordering overseas from a manufacturer or consolidator they never bought from, requiring upfront cash to procure or produce the items finishes up as a disaster."
The most successful purchase order finance deals involves a buyer that has recurring business with a vendor (Our Client), a good transaction history for at least 4 yo 6 months minimum and the vendor has financially strong suppliers in the back end supporting the supply chain. We fund purchase orders every week and these seem to be the most successful transactions.
There should be no reason to send money to a supplier if the items are not ready to ship. Many things can go wrong and almost every lender I know will not send money with these payment terms.
I wrote this small article so you can learn what I usually look for in a purchase order transaction and these should be the questions to ask the client needing po finance.
What makes up a viable purchase order financing transaction?
PO Funding involves a credit worthy buyer that will acknowledge the notice of assignment to lender/factor issuing a purchase order to a viable vendor that shall provide the items or services described in detail and a price that will be paid upon delivery that meets the terms and conditions of the Purchase Order.
If you are a supplier or a financial consultant looking for Purchase Order Funding, you should consider and analyze if the deal will qualify for purchase order financing based on the basic requirements of the transaction mentioned above. I suggest you study the questions below because every lender you approach will ask these questions at some point.
What is the description of the transaction and concerns from a lender?
Most lenders prefer that the supplier already have a relationship with the customer. Why?
These are just a few questions I ask my clients but the 1st step is to get the client to apply for invoice factoring, sometimes that alone will cover the cash flow needed to continue the supply chain cash flowing.
1st Commercial Credit provides purchase order funding for clients that are already factoring receivables for at least 90 days before consider finished goods po funding. We require at least 1 year before releasing funds for production po finance.
Raul Esqueda, President
1st Commercial Credit