There are situations when a company lacks the funds to get a letter of credit and feels that it would take too long before they receive payment. Purchase order financing is useful in such situations.This funding helps businesses that have commercial funding to meet their orders. They do this by guaranteeing the purchases from the seller who is selling the goods that you want to sell somewhere else. Your role is that of the middleman. This purchase order financing is important to the manufacturing companies as they are able to pay for the whole process and have the goods finished and shipped out from the factory. Once the financiers are paid, they recover their capital and commission and then give the rest to the customer.
The downside of this kind of investment is the location of these factories. Most factories are not usually in the country where the goods are being sold. The process as a result becomes very expensive to the client. The interest rates of this purchase order financing are also very high and sometimes the bank loans become quite convenient.However the banks are not lending the money that the small business will need due to their credit history. Therefore these small businesses have to look for financing elsewhere. That is the only way that they can survive without the loans. That is where the companies now come into place to provide financing. This is because the financiers do not look at the credit history.
You probably know the challenges that a company faces when trying to expand. The same ones are experienced when meeting the orders. The suppliers may sometimes ask you to pay upfront money. You might not have this money or if you have it, you will not be able to pay because of the cash flow problems that will follow.
You have to stay in business even when meeting this purchase order financing. You cannot get money from the banks because your financial statements are not that impressive. The number of days taken to pay by the customers to pay is also quite long and financing and waiting for this period is quite long.There are several requirements that the order should fulfill before it qualifies for this funding. The first one is that the goods should be manufactured and should not be service oriented. The second one is that the profit margin of this business deal should be more than 20%. It should in fact be more so that it becomes profitable to both parties.
The last thing is that the customer must be well established and must be very creditworthy. This makes it easier for the payments. The government contracts are the best for this kind of business. You can achieve business growth without even using your own funds to finance the deals.
Purchase Order Financing from GMA Factor