Purchase order finance allows small and medium size companies to fund large orders. This is particularly useful when a large order is secured by a supplier but appropriate funds not available to meet the order.

Purchase  Order Finance is particular viable to resellers, wholesalers, importers, and distributors who are buying products from suppliers and then delivering them to their customers with a minimum of 25% profit margin. They can also work in instances where goods are sold in conjunction with services (e.g. maintenance); however the goods part of the purchase order must be separate from the services component.

Other conditions for a purchase order to be viable include:

·        A minimum order of £5,000 per month

·        Order  must be finished goods for resale

·        Order must have been pre-sold

·        Order must have a minimum of 25% margin

As opposed to a bank loan, purchase order finance does not rely on the supplier’s financial strength, rather on the financial strength of their customer. So if you sell products to large companies, municipals, or government   agencies and departments, purchase order finance can be ideal solution for those sales.

Purchase order finance is a simple concept if used properly. The re-seller, importer or distributor buys the goods from their supplier using a letter of credit or wire transfer. Once the order is delivered and approved by the re-seller or importers client, the letter of credit will be paid to the supplier as agreed.

As soon as the importer or re-seller delivers the goods to their customer and an invoice raised, the transactions between the seller and buyer is completed and payment will usually be expected between 30-90 days. It is common to combine purchase order financing with invoice factoring because it enables the reseller to reduce the total cost of the transaction.

Benefits of Purchase Order Finance 

Purchase order finance can help you close big sales. It enables re-sellers or importers to take large orders using very little of their own funds. Additionally:

·        It can be used by established companies or Start-up companies.

·        It can provide up to 100% of the financing necessary to pay your suppliers.

·        It is easy to obtain and can be set up in days.

·        It is an ideal tool for importers and distributors.

·        It can be easily incorporated into any business.

·        It is easier to obtain funding than other traditional banking finance.