Who’s Financing Inventory and Using Purchase Order Finance (P O Finance)? Your Competitors!
It’s time. We’re talking about purchase order finance in Canada, how P O finance works, and how financing inventory and contracts under those orders works in Canada. And yes, as we said, it’s time… to get creative with your financing challenges, and we’ll demonstrate how.
As a starter, being second never really counts, so Canadian business needs to be aware that your competitors are utilizing creative financing and inventory options for growth, sales, and profits, so why shouldn’t your firm?
Canadian business owners and financial managers know you can have all the new orders and contracts worldwide. Still, if you can’t finance them adequately, you’re generally fighting a losing battle with your competitors.
The reason purchase order financing is rising in popularity generally stems from the fact that traditional financing via Canadian banks for inventory and purchase orders is exceptionally, in our opinion, difficult to finance. Where the banks say no is where purchase order financing begins!
We must clarify to clients that PO finance is a general concept that might include financing the order or contract, the inventory required to fulfill the contract, and the receivables generated from that sale. So it’s an all-encompassing strategy.
The other beauty of P-O finance is that it gets creative, unlike many traditional types of financing that are routine and formulaic.
It’s all about sitting down with your PO financing partner and discussing how unique your particular needs are. Typically, when we sit down with clients, this type of financing revolves around the supplier’s requirements and your firm’s customer and how both conditions can be met with timelines and financial guidelines that make sense for all parties.
The critical elements of a successful P O finance transaction are a solid, noncancelable order, a qualified customer from a credit worth perspective, and specific identification around who pays who and when. It’s as simple as that.
So how does all this work? Asks our clients. Let’s keep it simple so we can demonstrate the power of this type of financing. Your firm receives an order. The P O financing firm pays your supplier via a cash or letter of credit – with your firm then receiving the goods and fulfilling the order and contract. The P O finance firm takes title to the rights in the purchase order, the inventory they purchased on your behalf, and the receivable generated from the sale. It’s as simple as that. When your customer pays per the terms of your contract, the transaction is closed, and the purchase order finance firm is paid in full, less their financing charge, typically in the 2.5-3% per month range in Canada general.
In some instances, financing inventory can be arranged purely on an individual basis. Still, as noted, the total sale cycle often relies on the order, the list, and the receivable being collateralized to make this financing work.
Speak to a credible, trusted, and experienced Canadian business financing advisor about how this financing can benefit your firm.
Stan Prokop – founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com. Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset-based funding. In business for six years – has completed more than 50 Million $ dollars of financing for Canadian corporations.
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