What Do You Do When You Get a Big Purchase Order and Can't Fill it?
If your customer who sent you the purchase order is credit worthy as well as your supplier who'll produce your order includes a history of producing quality goods promptly, it is possible to probably get purchase order financing. That is sometimes called purchase order factoring.
The purchase order funder advances money to cover the inventory or issues a Letter of Credit and the supplier supplies you with the products. You deliver the order to your customer, generate an invoice and a factoring company pays you an advance on the invoice. The very first thing that gets paid may be the purchase order funding company.
You obtain the rest of the advance for operating capital and obtain all of those other invoice amount whenever your customer pays the invoice. A little fee is paid of that total the factor.
So, you see, it is a two-step process. You use the purchase order funder in addition to a factor, because the purchase order funder gets their money once the purchase order is filled (whenever your customer receives the order).
As imaginable, this can be a little more expensive than simply factoring, since both companies will charge a little fee. Your profit percentage should be at the very least 20% and preferably more for everybody to produce a little money.
There also needs to be considered a fairly small amount of time between your day you obtain the purchase order and your day the order is delivered and your day the invoice is then paid. If it requires 6 months to find the order produced and delivered and another 3 months for the customer to cover, it'll be more expensive when compared to a change time of 2 months and 45 days to be paid. If so, you better have an increased profit percentage.
The most significant move to make is look at all possible solutions once you get an order you understand you can't fill easily. Don't quit and refuse the order as you don't possess enough money to provide. Factoring 's been around for a large number of years, it really is safe, quite inexpensive and can help your organization grow.
Talk to your broker and see what they might do for you personally, there are answers to virtually all problems. Sometimes a Letter of Assurance or perhaps a 3-party Agreement could be drawn up gives your supplier a warranty that they can be paid of the factoring proceeds. Then rather than requiring payment on or before delivery (as you aren't credit worthy yet), they'll give liberal terms because your factoring company is paying them. When you can do it in this manner, you might not need the purchase order funder at all and can only have one group of fees -- a lot more than straight factoring but significantly less than both fees with the two-step process I described.
A good broker will undoubtedly be dealing with many financial companies that do various things so when one solution fails, will attempt another. So keep trying, don't automatically refuse that new order.