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Purchase order financing in Canada. We've labelled it finance solution # 68. While there probably isn’t 67 other different unique financing solutions ahead of it ( although there is more than you think ), it's safe to say it's probably the least well known or thought of finance solution in Canadian Business Financing.
WHAT IS PURCHASE ORDER FINANCING - FINANCING YOUR PRODUCTS AND SERVICES
Let's examine how P O Finance Companies market and offer the... dare we say it the ' genius ' of purchase order finance and the ability of small business owners to fund a large purchase or contract from a customer while avoiding the cash flow problems that come with increased need to fund sales. Using a PO Loan to fund your business is a solid finance alternative. Let's dig in.
ARE YOU UNABLE TO TAKE ON LARGE ORDERS AND CONTRACTS DUE TO FUNDING CHALLENGES
Many businesses in Canada lose out or are forced to step back when taking on contracts or a very large order when they realize they don't have the financial resources, line of credit or working capital to fulfill their client needs successfully on payment terms that make sense for your firm, your client, and your supplier/ suppliers. It might be a single order or a large ongoing contract - during COVID 19 that's even more of a challenge sometimes.
HERE ARE KEY ASPECTS AND BENEFITS OF PO FINANCE - HOW P O FINANCING CAN HELP YOUR BUSINESS
Enter the P O financier - But why then is this a reliable solution for growing sales /revenue in a big way for small business in Canada? The answers are perhaps not well known, but simple:
Purchase order financing is not debt - it's a way to help your business without adding debt to the balance sheet - Your firm should have good gross profit margins of at least 20% to sustain the costs of PO Funding as purchase order financing rates are higher in this business finance solution. But remember those higher interest rates allow you to grow revenues and profits without adding debt to the balance sheet or diluting owner equity.
Suppliers/vendors are very comfortable with the concept of your firm funding purchase orders as they are assured payment from the financing company
Properly constructed, no transaction is really too large when it comes to opportunities that involve legitimate vendors and clients.
The added expertise of the Purchase order financing companies often adds value to the overall transaction and can also include subsets of asset-based lending such as invoice factoring and inventory finance.
STARTUP AND ESTABLISHED FIRMS CAN UTILIZE PO FINANCING
Whether a firm is a start-up or established the qualifications required from the business owner are still the same to benefit from this unique financing - a verifiable non-cancellable order, a legitimate client, and your ability to demonstrate stable profit margins on the transaction. (P O financing is, in fact, ' genius ' financing - but its one of the most expensive forms of business finance solutions)
HOW DOES PURCHASE ORDER FINANCING WORK?
So how exactly does PO / Contract finance work? It's important to understand rates and terms. What are some of the key mechanics? It starts with understanding that sales revenues are generated from inventory and receivables. Your suppliers for orders or contracts are in effect guaranteed payment via a cash advance for products shipped to your firm under the P O finance facility. The alternative for paying suppliers in advance is to have established bank credit lines in place, and for various reasons that often are impossible for many companies.
WHAT ARE THE KEY REQUIREMENTS OF PURCHASE ORDER FUNDING?
So the essence of offerings from P O finance companies is that your firm has the ability to fulfill an order, your client must have the ability to pay for it, and your vendor must be an established firm as independently verified by the finance company. While many types of business financing revolve around credit score, ratios, covenants, outside collateral etc these are NOT the elements of supply chain financing solutions.
If your firm wants to utilize or better understand financing solution # 68 - Purchase Order Finance, then consider seeking out a trusted, credible and experienced Canadian business financing advisor who can assist you in fulfilling sales and contracts financing needs that are traditionally outside of your firm's ability to deliver. Financing purchase order challenges? Let 7 Park Avenue Financial be your firm's personal guide to purchase order funding at competitive rates - It's a ' genius' solution' for business growth!
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