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In the old days Canadian business owners went to their bank for PO Financing and Inventory financing... no really, they did... yes, really! Most companies now know that the financing of your inventory, purchase orders, contracts, etc. is a formidable challenge in the Canadian business financing landscape (especially when a line of credit is not available ), and the ability to purchase inventory for domestic or international orders is a valuable solution.

This is the time to check out the role of the purchase order financing company to help fund your client's large purchase. P O Funding solutions can provide you with the funds to pay vendors and suppliers and deliver on large orders and contracts.

PURCHASE ORDER FINANCING FOR SMALL BUSINESS IN CANADA

Simply speaking, your purchase orders or inventory were collateralized by the bank, and you borrowed against them for short-term access to capital. Therefore cash flow and working capital that was in effect tied up, or rather invested in your inventory and contracts, were monetized, and you had the ability to draw down against those dollars.

Government purchase order financing became very popular during the 2020/2021 Pandemic for Covid related ' PPE' supplies and related assets. The ability to maximize financing and have custom tailored payment terms to your purchase order is what PO Funding is all about. Talk about the ability to launch new growth projects while improving and increasing profitability!

INVENTORY FINANCING HELPS FINANCE GROWTH!

Well, the business financing landscape changed – yet your firm still has inventory, you have growth needs, and you need the financing to drive that growth into sales and profits. If you can acquire inventory financing, then the ability to borrow against that inventory and purchase order is key to customer finance solutions.

WILL YOUR BANK FINANCE YOUR PURCHASE ORDERS?

So if the banks aren’t really that into inventory and PO financing in Canada, then who is? The answer is purchase order financing companies! The reality is that it’s done via a select and specialized group of private finance firms who have total knowledge and focus on the value of your inventory and usually carry significant knowledge about your industry and the overall business model you operate in. The ability to take on larger new customers is an enviable position to be in.

THE IMPORTANCE OF ASSET TURNOVER AND GOOD GROSS MARGINS

It would help if you approached inventory financing with a positive attitude via a financing solution – by that, we mean that your presentation for the financing should focus around the positive aspects of your business – those should include inventory turns, marketability of your product, and, very importantly, the gross margins associated with your business.

We can categorically say that businesses with meagre thin margins are not the best candidates for inventory and purchase order financing terms simply because the financing costs around this financing chip away significantly at those final remaining profits.

We mentioned in our title that you should be cognizant of the risks associated with inventory financing via purchase order financing lenders – by all means, don’t consider the financing of outdate of very slow-moving or unsaleable stock – this quite frankly will be viewed simply as a ‘cash grab' that doesn’t make sense.

You will obtain a better inventory financing and PO financing deal if you have good controls on your products – that typically might include a perpetual inventory accounting.

INVENTORY FINANCING

Clients always ask if there are any special tips or tricks around the financing proposals around PO and inventory financing. We tend to focus on the basics, which always work -

The bottom line is that 9 out of 10 financiers have never even heard of PO financing or inventory financing, so seek the services of a trusted, credible and experienced advisor in this area to assist you in putting the right type of facility in place. Here's your chance to build credibility and trust with your supply chain around this innovative finance solution.

It's all about bridging the gap between shipment of products.. final delivery.. and of course, payment from the buyer! PO Finance is often combined with solutions from factoring companies (A/R Factoring ) to complete the invoice payment process relative to your newly created accounts receivable. Being unable to secure trade credit should not be a factor to limit your growth plans and strategy.

Purchase order financing is different from factoring because factor financing funds the receivable invoices while the PO Finance process helps create that receivable. Also, it is not a loan per see and brings no long-term debt to the business.

LOOKING FOR AN EXPERT IN PURCHASE ORDER FINANCING?

An experienced advisor in this area will help you avoid some of the potential risks, pitfalls, and financial ‘damage’ associated with inventory and PO financing gone awry. They might include higher than market rates, requests for additional hard collateral, locked-in contracts you can’t get out of, or inordinate appraisal and inventory count costs that don't properly support the financing you require.

If you are successful in avoiding those risks, the benefits will clearly be obvious - the ability to grow sales with unlimited financing of new sales or contracts, quick turnaround for approval, and cash flow benefits derived from your suppliers being paid directly by the finance firm. Additionally, you may be in a position to negotiate better pricing on products, thereby improving those gross margins we talk about. In many cases, government contract purchase order finance solutions can give you an edge in securing further contracts.

PO and inventory financing it's all about risk and reward – understand those risks, seek an expert to minimize them, and reap the benefits of increased sales and profit growth from the payments from your clients. When it comes to who uses purchase order financing, we can say that any firm that cannot access traditional bank working capital and cash flow financing is a candidate for P O Funding. P O financing works best when you have a qualified client and a legitimate supplier of goods. By the way, services are generally not able to be financed via the PO finance process.

PO Financing for startups is also available for qualified borrowers with good clients and solid suppliers to help your business scale and pays to fund that new large order! That when an appropriate finance service makes the most sense.

CONCLUSION - LOOKING FOR THE BEST PURCHASE ORDER FINANCING COMPANY SOLUTION?

If you still have questions or need information on your P O Financing Inventory Financing needs, speak to 7 Park Avenue Financial, your expert on purchase order financing in Canada. When it comes to how to get purchase order financing put our team on your side! Companies should have good gross margins in the 15-20% range to absorb financing costs.

FAQ: FREQUENTLY ASKED QUESTIONS

Purchase order financing is a short-term financing solution that provides cash to businesses to pay suppliers for client orders. Accessing advance funding for customer orders and contracts allows companies to fulfill large orders and contracts that otherwise might not be financeable by the company - allowing businesses to achieve higher sales volumes significantly.

PO Financing is not a loan that puts debt on a balance sheet. The Purchase order financing process is the payment of goods made to your supplier for products ordered from clients but not delivered. Working capital is created via the P O Financing process allowing sales to be generated before payment from clients.

P O financing interest rates/fees average between 3-5% - rates vary based on size and quality of the transaction and the time that the purchase order is outstanding from supplier payment to final customer payment for goods delivered and accepted.

Purchase order financing companies will usually offer to cover anywhere up to 60-70% of the Purchase order value to fulfill your supplier commitments on order, which ultimately becomes a financeable invoice to your client.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

P O Financing Inventory Financing | 7 Park Avenue Financial