Inventory And Purchase Order Financing Canada | 7 Park Avenue Financial

Header Graphic
Call Today For Canadian Business Financing Expertise tel 416 319 5769 !
Inventory and The Purchase Order Financing Arrangement  in Canada
Financing P O 's And Inventories In Canada




You've arrived at the right address! Welcome to 7 Park Avenue Financial

        Financing & Cash flow are the  biggest issues facing businesses today


CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs




inventory financing and purchase order financing in canada



Inventory and Purchase order financing in Canada are two relatively unknown financing strategies for Canadian business owners and financial managers who experience customer demand for larger contracts and orders that might not be financeable.


The ability to complete an inventory and/or purchase order financing strategy allows you to produce more, distribute more effectively and in a cost-efficient manner, and also to buy smarter. The ability of your firm to both buy smarter with additional capital, plus maintain the right level of inventories is a key factor in competitive success in your industry.


In some cases, your financing may be a part of an asset-based lending agreement which allows you to combine accounts receivable and inventory financing while you only pay interest on the amount of funding you draw down. Companie should have decent profit margins to absorb financing costs.


Inventory and purchase order finance can be a stand-alone finance solution from commercial purchase order financing companies or a PO financing lender or it can potentially be complementary to your current business financing.


The inability to secure supplier credit in the capacity your company needs is a constant challenge for many business owners. Vendors may often impose payment terms and conditions that simply can't be met and ultimately affect your ability to grow the business and profits.


Sudden growth opportunities must be capitalized on or they go to your competitors. Business owners and financial managers are required to determine what is their optimal financing for their inventory or client orders.

Companies with a solid customer purchase order or contract from reputable clients are excellent candidates for PO financing, while a general manufacturer who desires to build inventory levels on a constant basis should investigate the inventory finance solution that might also include an invoice financing/invoice factoring solution.


KEY POINT - The least expensive form of financing is Supplier Financing - so the ability to get extended terms from valued suppliers is in fact the optimal solution, but often not available, necessitating the use of a funding company. The ability to accept large new contracts as well as the ability of fulfillment to meet your client needs is the true benefit of Inventory/PO Financing and the services of inventory financing companies in Canada.


Many firms that utilize this method of financing also have the ability to expand into the U.S. or other international markets, opening up massive opportunities for growth. The ability to have access to capital and enter into new or foreign markets can be a game change to sales and profit growth for any business, Having financing in place to meet purchase order demands allows your firm to negotiate the best pricing and discounts available - in effect, you are ' pre-approved!


International purchase order finance can also benefit from the assistance of the Canadian government which has a mandate via EDC to supplement financing needs for Canadian exporters. A variety of industries can utilize this method of CANADIAN BUSINESS FINANCING and the ultimate solution is always tailor-made to your specific product and customer needs via a capable financing company partner.


PO Financing ensures that the financing in place is properly aligned with your payment terms to both your vendor as well as receipt of payment from your client. Numerous currency exchange issues are also dealt with within the PO order It is important to understand both the similarities and differences in P O Finance as well as inventory finance solutions. Both function differently.





Purchase order finance is directly related to a specific purchase order or contract and in essence, covers the goods directly related to the purchase order/contract. As a general rule only finished goods are financed under the P O funding mechanism, so no changes or modifications are allowed for the product. The entire process allows your supplier and vendor to be paid. As a general rule purchase order financing is not for building inventory levels so a general manufacturing firm looking to increase inventory levels via financing would not look to PO Finance.


Purchase Orders are closed when the product is shipped and accepted by the end client and invoicing creating a receivable occurs. At that point, the a/r is directly related to the order of financing in the normal course of business, depending on how the borrower funds receivables via a bank or financing companies in Canada.


Inventory Financing & Inventory Companies Companies looking to leverage capital for the build-up of inventories look to a sole inventory finance facility. The facility can be ' stand-alone ' or as part of a business line of credit or asset-based lending facility. Therefore the inventories being financed are not specifically related to any one specific client. It is really a working capital solution for that critical part of your current assets on the balance sheet - inventory!


Commercial finance lenders or a full-service factoring company for accounts receivable may choose to visit the borrower on a regular basis to ensure inventory is adequately maintained - companies should be capable of producing inventory reports and ensuring they have proper inventory accounting in place. For larger deals, a lender might insist on a PERPETUAL INVENTORY SYSTEM being in place. Inventory can be a major portion of a company's cost of goods sold. ( COGS ).



The ability to access capital to fund inventories is challenging and the ability to turn inventories is key to long-term financial success. One of the largest costs when it comes to operating a business in Canada is being able to purchase inventory. However, purchasing quick-turnaround inventory can be difficult for a new business owner.


This is where inventory loans come into play. Companies that tend to look for inventory solutions are distributors and manufacturers. Unlike our P O Financing, for example inventory can be in various forms, which typically are raw materials, work that is in progress, and of course finished goods. In the P O finance process credit, adjudication is made on your firm and as well who your client and supplier are key aspects of the final approval to finance decision.


When it comes to inventory is all about the valuation of your inventory vis a vis potential liquidation values in event of default from the bank or non-bank commercial lender. As a general guideline, a purchase order financing company will cover approximately 75% of the order from your client. Financing is directly related to the payment to your supplier. For most firms, this will typically cover the majority of costs related to your order and it assumes that your company has good gross margins.




Financing a purchase order doesn't work well with low-margin transactions as the transaction will not cover the additional financing costs. So having a gross margin in the 25-30% range is very desirable for this method of financing. Companies that require general inventory financing for their ongoing business can get anywhere up to 70% of the agreed-upon liquidation values of the inventory. In many cases, some sort of third-party appraisal might be required, but in general, many inventory financiers are very familiar with inventory values and have significant expertise in certain industries.


As a manufacturer, your goal is to maximize the funding value of the inventory. Clients of 7 PARK AVENUE FINANCIAL ask us how they can finance inventory more effectively in their Canadian operations. Inventory financing in a traditional manner had your firm acquiring an inventory facility as part of your Canadian bank operating facility.


If you are successful in obtaining such a facility one of the challenges is simply that this level of inventory margining is not sufficient to meet your needs. The very simple reason for this is that the traditional chartered bank does not necessarily understand inventory lending, which requires a unique focus and specialized knowledge of a wide variety of industries. The best solution for an inventory financing facility in Canada is actually a dual solution.


You should finance inventory separately outside of your bank arrangement – this will give you additional margining with a finance partner who understands your industry and inventory financing needs. The other solution is to combine the inventory financing within a non-bank asset-based lending facility that provides you with maximum margining on both inventory and accounts receivable. Your facility operates just like a bank line, but you are receiving maximum liquidity via higher margining of both inventory and receivables.


By higher margining, we simply mean that if you were getting nothing or say 25-30% on your inventory credit line you will probably be in a position to now receive between 40-80%. What does that mean? Of course, it signifies greater cash flow and working capital for the Canadian business owner. A ‘true‘ inventory financing facility will now include margining against all three types of inventory:


- Raw materials

- Work in Progress

- Finished Goods


We caution you not to enter into an inventory financing facility whereby your inventory must be stored at a third-party warehouse in order to receive financing consideration. We do not recommend clients pursue this type of facility. A solid inventory financing facility will allow you to grow sales and increase your working capital base. With respect to purchase order financing, this is clearly another financing strategy that has emerged as growing and more popular in the Canadian business environment.


It is not difficult to understand its popularity. Consider your firm has received a large domestic or international order but does not have the working capital ability to properly produce and deliver that order. More often than not that is simply because of the cash flow cycle – your order is large, you require inventory and equipment to produce the order, after you have produced it you have to bill the order, and then, of course, you wait to collect your receivable. That whole process can easily take 60-120 days in any firm.


With purchase order financing your supplier is paid directly by the P.O. financier. You then receive materials and generate products for your customer. When you bill your customer that invoice must be discounted immediately in order that the purchase order financing firm gets paid. P.O. financing works best when you have a small number of suppliers, and you have good gross margins that can sustain the additional cost of financing the purchase order and then the receivable. It allows you to grow your business and stay significantly more competitive.


Almost any size or type of firm is a candidate for purchase order finance solutions, even less established or smaller firms - as a general rule in order to qualify for financing of inventory a firm should be established and have reasonable financials. Many inventory finance needs can be accommodated as part of a business line of credit that finances both receivables and inventory as part of the facility.


These solutions can come from factoring companies or asset-based lending companies. The process of purchasing more inventory via an asset-based line of credit frees up capital for additional purchases. As your accounts receivable and inventory turn, you purchase additional products to sell. Firms that have unsecured credit lines have the ability to purchase goods in the normal course of their business.






Alternative lending solutions that we have described work for businesses for some very fundamental reasons: Alternative finance is generally much easier to get than traditional bank financing, so solutions such as a receivables loan or non-bank credit line are very accessible


Inventory, a/r, and P O Financing ability grow almost automatically as your business opportunities grow The ability to leverage asset financing often not available in traditional finance increase cash flow and working capital growth to fund day-to-day operations and growth opportunities- Government purchase order financing is also available.




The best way to handle a situation where your business has more orders than they have inventory or cash on hand? Get some financing! This type of financing can make sense for small businesses that receive high levels of sales and customer activity.


Business Funding via Purchase order financing, as well as inventory financing in Canada, are ‘boutique‘ in nature. We strongly recommend you investigate the benefits of these financing strategies - Talk to  7 Park Avenue Financial -  your small business financing expert and an experienced and credible business financing advisor in this area of Canadian business.




How does purchase order financing work? 

When a  PO Financing firm approves your funding the firm will pay vendors and pay suppliers directly, allowing a company to access the goods or materials required to fulfill the order. Once the company's client receives the goods and the customer pays via payment made to the PO Financing company which deducts financing costs and fees related to the order and pays the remaining balance to the borrower. The purchase order financing cost is based on the overall credit quality of the transaction as well as transaction size.


What information is required to qualify for purchase order financing transactions?

The key info to start the application process on PO funding transactions includes your client's purchase order/purchase orders, supplier info or quote and legal information on your business which includes general business credit information such as company financial statements. Purchase order loans typically will require owner personal guarantees.

Purchaser order financing works best for established firms and is more difficult to access for startups via PO  financing companies.


What is inventory financing?   

   Inventory finance solutions allow a business to access and leverage existing inventory needs that might not necessarily tie back to specific customer orders. Financing inventories provide more working capital for cash flow needs to cover day-to-day business needs.



Click here for the business finance track record of 7 Park Avenue Financial

' Canadian Business Financing With The Intelligent Use Of Experience '

7 Park Avenue Financial/Copyright/2024






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