What is it
With Purchase Order Finance, once goods are ready to be shipped, we can pay the supplier and even include additional fees like inspections and insurance costs. When the goods arrive at the port of entry, we can pay freight, duty and VAT to speed goods through customs clearance. Depending on whether they are finished goods or require further processing, they can be shipped to your warehouse or direct to the customer at which point you can then raise your invoice, which will be used to clear the finance costs.
How it works
You have business clients that you invoice on agreed payment terms which could be from 30 to 90 days, but you need the cash now in order to keep your business running.
Some factoring companies lock you into a long-term contract for all of your invoices with a minimum monthly utilisation. Then they charge fees for everything from admin to late payment penalties. With purchase order finance we have simplified it.
You receive an order from your customer.
You identify a suitable supplier(s).
You notify us that you wish to use your purchase order finance facility so that we can approve your supplier for payment.
You place the necessary orders consigning the goods to us and send us your deposit.
Depending on the agreed terms, we pay the supplier in full for the goods.
The goods are shipped to the customer, a suitable warehouse or a manufacturing facility where they are processed.
As soon as the finished order is delivered to the end customer, you raise the invoice which is assigned to us.
We factor the invoice using some of the proceeds to settle the purchase order advance.
Depending on your margin and the terms we have agreed we may at that point make an interim advance to you, usually the refund of your deposit.
When your customer settles his invoice, we deduct our fees and rebate the remainder to you.
With Purchase Order Finance, the fee is shown as a percentage of the invoice total, but it’s calculated using a couple of factors:
- the amount paid to the Supplier,
- the number of days from draw down until your client settles.
Check with suppliers to see if they will offer early settlement or prompt payment discounts.