Skip to content
icommerce.asia

icommerce.asia

Purchase Order Financing Tips and Secrets for Canadian Firms Seeking Trade Finance

Zara Nan, July 28, 2023

Your worst business nightmare just occurred. You got the order/contract! Now what?!

Purchase order financing is a great tool for firms that have unusual purchase order and contract sales financing needs but are potentially unable to access traditional financing via banks or their own capital resources within their firm. How does trade finance P O financing work, does your firm qualify, what are the costs, and how does it work? Great questions, now let’s explore some answers!discounting

Typically Canadian firms looking for this type of financing are distributors, manufacturers, or perhaps wholesalers. A variety of industries in Canada have access to this type of financing, but those certainly tend to be the typical firms needing assistance.

Your need for purchase order financing arises out of what we call the classic working capital gap. What do we mean by that? It’s a case of your suppliers requiring payment either up front or within 30 days, with your firm unable to generate those funds for payment and therefore unable to fill large purchase order and contracts in your favor. Your supplier is asking your for payment in advance or 30 days, and you wont receive payment for at least 60-90 days, perhaps more depending on your build cycle, etc.

Naturally you don’t want to turn down orders or lose competitive market position.

The obvious solution for low cost large amounts of funds are Canadian chartered banks, but our observation is that many firms simply cant satisfy the banks requirements for this type of financing to occur. If your firm is growing, profitable, has a clean balance sheet and strong historical cash flows and history you of course have a solid chance of meeting bank requirements, however that typically is not the case, certainly in the amount of clients we talk to who are looking for alternatives to their growth challenge!

When you access p o financing you can have comfort that your suppliers will be paid, and at the same time you generally have access to all the funds you need. Typical purchase order financing applications take anywhere from 2-4 weeks to complete and involve basic financial due diligence on your firms ability to fulfill the order, who your customer is (they must be credit worthy), and your proper supplier sources must be identified and vetted. It’s as simple as that.

So what are the basic pre requisites for a solid P.O. Financing deal? Naturally your company must be in possession of a contract or order that is not cancelable by your client. The P O finance firm arranges to pay your suppliers directly, that alleviates all you cash flow and working capital concerns. The transaction is completed when you ship the goods and your receivables are generated on the sale. It is at this time the purchase order finance firm expects to be paid, and this is traditionally handled by your firms monetizing of its receivable via a bank or factoring facility. Factoring facilities are great partners to the P O financing strategy, because use of them guarantees payment to your P O firm.

Let’s cover off a couple tips and secrets around the cost of purchase order financing – It generally is in the 2-3% per month range in Canada, and that means you have to have solid gross profit margins in order to be able to sustain the finance charges. But let’s be honest, let’s say your firm has been doing 750k of revenue for the last couple years and you finally get the large order from a major customer for 1 Million dollars. Wouldn’t you give up 2-3 % of your profit margin in order to make one sale which is the equivalent of your entire year’s business? We think you should positively consider that! Clearly the higher cost of this type of financing covers off the complexity and risk that the P O finance firm takes in paying for goods, waiting to get paid, and having the belief that your firm will fulfill the contract order.

It has been our observation with certain clients that your successful completion of a purchase order finance deal typically significantly enhances your relationship with your major suppliers and of course customers, that’s a secret benefit that is intangible but invaluable at the same time.

Is P O financing for everyone. Maybe not. Could it be possibly the solution to major working capital needs if your business is growing and can’t be financed traditionally – we certainly think so? Speak to a trusted, credible and experienced purchase order finance expert to explore your options.

Opinion

Post navigation

Previous post
Next post

Leave a Reply Cancel reply

You must be logged in to post a comment.

Archives

Categories

Recent Posts

  • Best Men Bomber Jacket

  • Fleece Anorak Jacket Men

  • Printed Short Men

  • Nike Black Mens Jacket Medium

  • Top 10 Best Streamer Fishing Rod Comparison

  • Comparación de Las 10 Mejores Pipetas Para Gatos

  • What Is a Men’s Formal Suit Called?

  • Wool Sherpa Jacket Mens

  • Down Jacket Hoodie Men

  • Comparación de Las 10 Mejores Comprar Gallinero Barato

  • Mens Mid Weight Winter Jackets

  • Soft Sided Dog Crates Reviews

  • Top 10 Best 8 Inches Trivets Comparison

  • Top 10 Best Avet Raptor Fishing Reels Comparison

  • Top 10 Best Penn Pursuit Ii Spinning Fishing Reels Comparison

  • Carhartt Men’s Sandstone Detroit Sherpa Lined Jacket

  • Best Infant Shoes Uk

  • Mens Winter Jackets Clearance Sale Canada

  • The North Face Men Mcmurdo Parka Jackets

  • Rains Long Jackets Men’s

  • Top 10 Best Carbon Fiber Body 6000 Series 12 1 Bb Spinning Fishing Reel Comparison

  • 4 Shelf Wall Unit

  • Top 10 Best 7000c3 Fishing Reel Comparison

  • Top 10 Best Stereo Microphone Review Comparison

  • Top 10 Best H2o Express Fishing Reel Comparison

  • Top 10 Best 2 Wt Fly Fishing Reel Comparison

  • Flannel Shirt With Sport Coat

  • Latest Fashion Men Leather Jackets

  • Top 10 Best Chronarch Fishing Reel Parts Comparison

  • Free Football Betting Tips for Wiser Wagers

©2025 icommerce.asia | WordPress Theme by SuperbThemes