How Purchase Order Financing Works for Your Consumer Product Company
YIkes! You just received a tremendous purchase order from one of your top customers. This purchase order is going to be hard to fill because you don’t have the cash flow. Ok, maybe you think you have the capital to fill it but you don’t want to tie up the money for such a long period of time.
Based in New York City, MRKT Capital works with a number of great consumer product companies that may need financing. New York has the Garment District, Toy Building, it’s close to ports, and there is an incredible hardware startup scene. Learn how Purchase Order Financing works below.
How Purchase Order Financing works for Consumer Product Companies.
1. Build a great product, or source one.(of course)
2. Present this product to your customers. Preferably large ones who can write very large purchase orders.
3. Go through the process of becoming a vendor of that buyer. Some retailers have a very long process to become a vendor. If you are already working with a Purchase Order Financing Company you can involve them in the process. They can often times point you in the right direction because they have done this a few times before(hopefully).
4. Receive the purchase order! But be patient. Some retailers take months to issue you their first purchase order. This could be due to processes or seasonality. Don’t seem too desperate but also let your buyers know you are ready when they are.
5. Prepare for production with your vendors right away leaving ample time to deliver and a few extra days or weeks as a cushion.
6. If you haven’t already, review the transaction with your Purchase Order Financing Company. If you are relying on your Purchase Order Financing Company to finance the PO then you should have already checked the customer’s credit worthiness and confirmed you will be funded.
7. Your PO Funding company will arrange for inspection and payment of goods. This typically happens through a letter of credit, paying against documents(DP), or sending cash upon receipt of goods.
8. Goods are shipped to your customer. Some lenders will allow you to bring goods in house first but most will want you to send directly to your customer or to a 3rd party public warehouse.
9. Confirm customer has received the goods and invoice your customer.
10. Invoice is then assigned to your factor or submitted along with your borrowing base certificate(if an asset based loan).
11. First advance against your accounts receivable or borrowing base is sent directly to the PO Funding company to reimburse for the sold goods.
12. Factor or ABL company collects the balance of the AR and remits the reserves to you upon collections.
13. The End
If an entrepreneur finds themselves in a tough situation filling large purchase orders, Purchase Order Financing is a great tool to turn to. Being able to take on whatever orders your buyers and clients may throw your way is important for a growing business. Having the right funding is crucial to remain competitive in today’s markets.
If you are ready to start selling wholesale or are looking for funding for your next purchase order contact us today at firstname.lastname@example.org. We are always happy to help educate or work with businesses at all stages. Let’s get you the funding you need, today.