How Purchase Order Financing Can Benefit a Commercial Importing Business
When a small importer gets a big 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 pre-payment. The supplier will then manufacture and deliver the goods to the end customer. Once received, the customer will take anywhere between 60 to 90 days to pay for them. These types of transactions have very demanding cash flows, leaving the importer with a serious financial dilemma. Most Banks will not consider purchase orders as valuable collateral.
Purchase order funding is designed to finance importing transactions that meet specific criteria. Qualifying for purchase order funding is generally easier than qualifying for most conventional banking loans. The most important prerequisite is to have customers with good commercial credit. This is critical because the finance company is funding this transaction based on your customers’ ability to pay.
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 understands the importance of relationships and providing great service is more than just a promise. We are able to evaluate funding opportunities worldwide since our Management Team has over 30 years of experience in the global finance arena.
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