PO Financing Rates
Everything you need to know about PO Financing Rates and Where to Find the Best Deal
WHAT IS PO FINANCING?
Every now and again an entrepreneur needs financial assistance or PO Funding(Purchase Order Funding) to meet certain business obligations. We will explain everything there is to know about PO Financing Rates but first let's talk about what it is. Below is a definition of PO Financing to help you understand how this financing tool can help your business succeed in today's competitive market place.
PO Financing Definition - When a lender provides financial assistance in order to help you fulfill a large purchase order from your customer. How It Works: Typically a lender or financial institution will pay your supplier directly to purchase inventory for resale on your behalf. Once the goods ship to your customer and you invoice them your Factor or Accounts Receivable Financing company will pay back the PO Funding company first before providing you with any additional availability. While this type of facility does not inject any additional cash into your business it allows you to buy/sell without any strain on your working capital or cash flow.
How do PO Financing Rates Work?
PO Financing rates, for the most part, are pretty straight forward and easy to understand. Most of the time you will se a % charged based on the lenders committed exposure in a transaction. There are a few miscellaneous charges that are standard and we well review those as well a bit later. When looking into Purchase Order Funding it's important that you understand that this is not "Purchase Order Loan" but a facility that accommodates for your lack of credit or working capital to fill larger Purchase Orders for your customers.
First, let's talk about the biggest portion of the charge for PO Financing Rates. The "supply fee" or rate is charged against whatever amount the lender or commercial finance company has committed to paying your vendor. This commitment can be actual or contingent, but if it is a firm commitment the clock is ticking. This commitment is usually in the form of a letter of credit, wiring cash to a vendor, issuing a purchase order on your behalf, or agreeing to pay at a later date. This initial charge ranges from 2-6% per 30 days depending on the complexity of the transaction. For example, a lender may charge 2% per 30 days for finished goods and 6% per 30 days for a complex work in process.
Second, there may be a few very standard fees or cost in addition to PO Financing Rates that add to the overall cost of the service. Below is a quick list of what these charges may consist of. While many people feel there are a ton of hidden fees, most of the fees are already present in your normal course of business. See Below.
- 3rd Party Inspections - $200-$300 per "man day" depending on location of factory and size of inspection. Most PO Funding Companies will want to have the goods inspected before making the purchases.
- Bank Fees - If using a letter of credit, the bank fees will be passed along to you. .25% for bank fees to open and close a letter of credit. Additional fees may include changes to the LC, discrepancies, etc.
- Wire Transfer Fees - These are pretty standard. Don't pay more than $25-40 for wire transfers. Some companies will try to charge $75 PLUS! Run from these guys, run away fast!
- Accounts Receivable Factoring Fees - While these fees are totally separate from PO Financing, the cost of factoring adds to the overall cost of a Purchase Order Transaction because it is required as a way to take out your lender.
As you can see, PO Financing Rates are not so scary. The best way to look at them and see if it makes sense for you is to view the PO Financing Rates as a "Cost Of Goods Sold" or COGS. The rates are certainly higher than bank loans, or certain term loan products. Cheaper than cash advances. The risk, management, and working capital availability are also much greater than your traditional business financing options. After all, the costs of not being able to do the business are certainly much higher!
Get Started with PO Financing Today
Apply for PO Financing today and let's see how we can help. Set up typically takes 3-5 business days, and then follow up transactions can be executed in as little as 24 hours. Contact MRKT Capital representative today and let's get you the funding you need to continue growing.