Using PO’s to Finance Working Capital

We found a good article that talks about PO Financing and how a company can patch working capital holes with a cash advance from a lender against a PO. Though the article discusses this type of financing in Canada, the details and merits remain the same for companies here in the US.

By choosing to put in place a PO financing facility you allow your company to take on much larger orders. This is because you can receive 50% of the value of a PO from a lender at the time of execution on the PO. Basically, the lender pays your suppliers or pays for the items from your inventory, which you can then restock. Once the order is shipped to your customer and you generate an invoice, the agreement transforms into an AR financing arrangement, and you receive a further advance (typically another 30% given standard advance rates of 50% for a PO and 80% for an invoice).

PO financing can also increase the efficiency and speed with which you ship and fulfill your orders. Without a facility in place, you may have to piece together the funds for a large order and wait for payments from other customers, which adversely affects your ability to quickly fulfill and ship.

Further, you can offset some of the costs of a PO financing facility by negotiating volume discounts with your suppliers. You can now start buying in bulk so to speak, since you have the financing in place to pay for larger orders. None of this activity affects your relationship with your customer other than improving your time to ship and your ability to fulfill large orders. This will also affect your bottom line because “the cost of paying in full is usually much higher than the cost of borrowing”.
About Payplant

Payplant provides growth financing for entrepreneurs, by entrepreneurs. Its Pay Me Now^TM digital invoice-financing service provides cash to businesses when their customers pay too slowly. Payplant helps businesses with PO and Invoice Financing, Asset Based Lending, Term Loans and Customer Financing products. Payplant works with companies that don’t currently qualify for traditional bank financing, have grown too quickly for their current lender or are at the point in their evolution where an influx of working capital can elevate their business to achieve rapid growth. Payplant delivers fast and reliable funding, at very attractive rates and is completely on demand. For more information, visit www.payplant.com.