PURCHASE ORDER FUNDING (CONTRACT IS SLIGHT VARIATION)

Purchase order funding (PO Funding) is funding for the specific purpose of filling verifiable, non-cancelable, in-hand PO's from creditworthy customers. This type of funding is best suited for companies where traditional bank loans or factoring is not available or sufficient and where PO funding can replace additional equity infusion.

Companies which most often use PO funding:

Distributors Wholesalers  Importers 

These companies may need to pay for the product before they can make delivery and invoice their customers. Companies which are experiencing rapid growth or have an unusually large purchase order often need PO funding as well as companies that have seasonal businesses.

PO funding is done on a case-by-case basis with:

Funds advanced paid directly to third party suppliers

If the product to be supplied is manufactured internally, the PO funding applicant will have to have strong financials (contrary to most other cash flow streams) as the PO funder's primary concern will be the ability of the applicant to fill the PO's in a timely manner while meeting all quality standards.

In this type of funding, the merchandise secures the funding as well as the right to fill the PO's.

When the goods are delivered:

The resulting invoices are usually factored with the PO funder being retired at that point.

If the sales are COD:

The payments are made directly to the PO funder, with the profits less the PO funding fees going to the company.

The cost of PO funding is higher than other forms of alternative funding in the cash flow industry and can be based on:

percentage of a percentage of the PO total, or  percentage of profits  the actual funds advanced.

The cost of PO funding would be favorably offset by the cost of additional equity or venture capital and/or lost profits and growth.

Additionally, when best applied, PO funding should have served as bridge funding, enabling the growing company to realize profits and maintain growth while getting to the point where cheaper traditional funding is available to them based on demonstrated profitability and performance.