PO Funding And Factoring

When the manufactured product that is the subject of PO Funding is delivered to the ultimate buyer, the Invoice that is generated will be subjected to Factoring. The PO financing charges will be deducted at this point.

If the sale is COD, the ultimate buyer will pay the PO funder, who will first deduct the PO Funding fees, before remitting the balance to the company.

PO Funding is more expensive than Factoring. Companies are advised to consider it after they have factored, or borrowed on their Receivables and still require additional funding to complete existing Purchase Orders.

Cashwerks www.cashwerks.com is a Commercial Finance Consultancy providing intelligent capital solutions to start ups and mid-sized companies.

© 2006 Sanjeev Aaron Williams & Cashwerks All Rights Reserved

Levels Of Purchase Order Funding

There are 3 levels of PO Funding depending on how closely the company is involved in the manufacture of the goods.

1. The company is not directly involved and has a domestic or foreign supplier manufacture a finished product. The supplier will not start production or will not release the goods until they receive cash payment or, a Letter Of credit is issued to assure payment.

The PO funder will determine that the finished product matches the specifications of the PO and is shipped to the ultimate buyer within the contractually stipulated time.

The good news is that since the finished product will move directly from the producing supplier to the ultimate buyer, the financial condition of the company applying for PO Funding is not as critical. This is the easiest type of PO to be funded.

2. Most of the product is produced by an outside supplier and the partly completed product then moves to the company's facilities for final assembly or packaging. PO Funding may be possible, but the company's financial strength becomes more relevant.

3. The company fully manufactures the product itself. PO Funding will only be provided if the company is financially strong and has a good track record.

Companies that fall into this category already have traditional bank financing, but may have fully drawn down on their credit facility. These companies need further financing due to a sudden increase in new orders.

Cashwerks www.cashwerks.com is a Commercial Finance Consultancy providing intelligent capital solutions to start ups and mid-sized companies.
© 2006 Sanjeev Aaron Williams & Cashwerks All Rights Reserved

Purchase Order Funding 101

A company may have Purchase Orders by which it is to supply GOODS to another business. However, the company does not have enough liquid capital to begin manufacturing the goods. In this case, the company might use PO Funding. Note that PO Funding is only available for a manufactured product. It is NOT available for the supply of services.

PO Funding is short term funding. The company submits the PO and a manufacturing costs breakdown to the funding source. The funder will advance a portion of these costs to the company (or to the company's supplier of the manufactured product).

When the goods are delivered to the company's ultimate buyer, an Invoice is generated. This Invoice will immediately be subjected to Factoring. The funding source of the PO is repaid the advance plus his fee by the funding source who factors the Invoice.

PO Funding is regarded as high risk since the goods have not been manufactured - or are only partially complete. Factoring is always involved in PO Funding. The entire transaction of PO Funding and Factoring can be done by a single funding source, or can be split between a PO funder and a Factor.

© 2006 Sanjeev Aaron Williams & Cashwerks All Rights Reserved