FAQ’s – Purchase Order Financing

What is Purchase Order Financing?

Purchase Order Financing, also known as POF, factoring, or Purchase Order Funding, is a specialized loan that you can use to purchase goods and equipment that you need in order to fulfill a currently existing order from a customer with great credit. The payment of this kind of loan is made directly to the suppliers. The invoice related to the order is then factored, meaning that they are assigned and sold to a lender. You get an immediate advance of up to 90%, which in turn shortens your sales cycle. You get to get your company’s work rolling, and work quickly expands. Since the payments will be coming from your customers, we will handle the payment that they are supposed to give to you.

How much does POF cost?

There is a fee involved with Purchase Order Financing, and there also is an interest rate that you’ll be charged. The interest rate might look a bit pricey at first, but you have to remember that contribution that the loan is making to the profit. For example, a factory that borrows $100,000 for raw materials might have a 30% profit margin. Assuming that the rate is between 3% and 5% of the amount borrowed, the Purchase Order Financing will cost around $3,000 to $5,000 – plus a small fee. However, if that company is selling those goods produced for around $140,000, they still made a lot of profit while keeping the client happy.

How long is the minimum contract term?

Each POF case is different, and there’s no real concrete minimum established. So, you’ll have to call us.

Are there any minimum monthly fees that I’ll need to cover?

Nope. All the fees are one-time, and the interest rate takes care of any other payments you’d need to send.

How do lenders decide which companies will receive funding?

All of the decision-making is based on seeing that you have a decent, believable promise of profit. Of course, lenders will also be looking at the reliability of the supplier, payment management, and management expertise as additional factors. That being said, as long as the purchase order you’ve received is from a credible buyer, you should be able to get funding.

How long does it take to get the funding from POF?

Though we’ve been able to make it happen in as little as a single day, it usually will take anywhere from 3 to 5 business days to complete the transaction. Once you’ve gotten POF with a lender we use, we can usually expedite future financing to make it happen by the next business day.

Is my business too small for this form of funding?

There’s no such thing as too big or too small with POF. We currently are able to fund up to $10 million per client, but we’ve had contracts which were as low as $5,000 before.

Do you require a personal guarantee?

The only time we’ll ever ask for a personal guarantee from the business owner is if the company in question is a privately traded company.

What’s recourse and non-recourse POF?

Recourse Purchase Order Funding (RPOF) is a form of POF which forces the borrower to pay back the loan if their client backs out. Non-Recourse Purchase Order Financing (NPOF) does not hold the borrower liable if the client cancels the purchase order. We offer both RPOF and NPOF.

Can you factor international purchase orders too?

Absolutely. It is a globalized world, after all.

Can we just get the money from you and pay the suppliers ourselves?

Unfortunately, no.

What do you get from your work?

We get a small percentage of the money used to fund hard goods.

Which orders are the best for Purchase Order Financing?

Generally speaking, the bigger the order, the better off you’ll be choosing factoring. If 20% of your clients make 80% of your profit, we would strongly suggest factoring those 20% of your clients.

You said that you handle the payment. Does that mean that you will begin harassing them to pay you sooner?

We are not a collection agency, and the last thing we ever would want to see happen is for you to lose a customer because of our bad behavior. We pride ourselves on treating your clients well, and not being heavy-handed in our payment approach.

What will my clients think about this? How will they know we factor?  Usually, we will notify your clients that you are factoring their order immediately upon an agreement being reached. We then will tell them to pay the lender directly. Your clients won’t care how you’re handling your business. It’s so common to use POF these days, many major companies will expect it.

Do I need an attorney’s assistance?

It’s never harmful to speak with an attorney regarding personal and business matters, and often times, it may be the best thing you can do if you think that an attorney’s advice can help you. Although we aren’t a law firm and we cannot provide anyone with any legal advice, you are more than welcome to speak with an attorney that we use for our company. We truly want to get familiar with our clients, and help them in any way we can. Simply send an email to info@thecreditexpress.org and we’ll be sure to forward it.

Still need help?  If you have a question that isn’t answered here, or if you feel like you could use advice when it comes to the best route of financing for your business, we are here to help you make the best choice for your company!  You may call us at (678) 983-4555 or email: info@thecreditexpress.org.  You’re also more than welcome to visit our office.  Evening and weekend appointments are available.