Many companies continuosly get stuck trying to fulfill PO’s based on the large size or cost of the order. Companies usually don’t have the capital to fulfill these large customer orders that are on 30 to 180 day terms. This is why it is important to receive Purchase Order Financing to gain larger nationwide sales and product growth finance for new orders.
Right now, in the supply chain market, a merchant places a purchase order to the vendor. The vendor then produces the goods, and ships to the merchant often on net terms, not cash! Then the vendor has to wait for the merchant to pay for the goods after 30 to 180 days. If the merchant has a second order, and a third order, and so on, this can add up quickly! And, If the vendor has multiple merchants, all placing these types of purchase orders. This is a recipe for disaster. How can a vendor continue to sustain this supply chain, without going out of business? The real answer is, they can’t, because the vendor has no more money available to run their business, and has now completely run out of cash.
Most financial firms will want to make sure a company has a good credit score, provide proof of income, low debt-to-income ratio, and possibly a cosigner. Lenders will typically check your credit score to see how creditworthy you are. A higher credit score can make it easier to get approved for most financing. Lenders usually prefer to see a low debt-to-income ratio because it means you have more disposable income to put towards repaying your loan. However, companies should know that there are other options for vendor financing.
With some companies, credit is not a huge issue, some companies just need these financial documents from a vendor:
a) Current Purchase Orders
b) Following Financial Documents
- 2021 financial statements
- 2021 monthly Sales & COGs by SKUs
- 2022 YTD draft Financials (QB export works too)
- 2022 YTD Monthly Sales & COGs
- 2022 YTD Cash Flow Statement
- 4 most recent bank statements
What are the Example Terms of Vendor Financing?
Ideal PO Financing companies charges a Supply Cost Value as management fee and the price of the product quoted is usually DDP USA by Ocean or Air. (DDP = Delivered, Duty Paid.) A company might also charge a per month on the PO value of goods from date of PO to date of full repayment. PO Finance companies will need details of current indebtedness, current lenders, UCC liens and current out-standings. PO Companies will need to file a UCC-1 and work out intercreditor / subordination carve-outs on the inventory we finance.