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Invoice Factoring For Importers

When a small importer gets a large purchase order from a large client, it can tie up their cash flow. To fulfill the transaction, they will have to buy the goods from their foreign supplier, who will ask for a prepayment. The supplier will then manufacture and deliver the goods to the end customer. Once received, the customer will take up to 90 days to pay for them. As you can see, these types of transactions have very demanding cash flows, leaving the importer with a serious financial dilemma: if the order is too expensive they will risk losing the order and the client.

Financing this type of transaction is very difficult because most financial institutions will not consider purchase orders as valuable collateral. Purchase order funding is designed to finance importing transactions that meet the following criteria:

  1. The transaction must be a strict product resale; meaning you cannot manufacture the goods directly
  2. The supplier must accept payment by letter of credit
  3. Both your supplier and your customer must have good commercial credit and a good reputation
  4. Gross profit margins must be of at least 30%

It’s a common practice to use factoring in combination with purchase order financing. What usually happens is that the transaction starts as a purchase order funding transaction and then becomes a factoring transaction once the goods are delivered to the customer and invoiced.

GMA Factor advances you up to 99% of the invoice amount immediately and doesn’t sign you on to any long-term contracts.  Get started immediately by filling out the quick application on the right-hand side of this page or go to our online or downloadable application.