Do you have clients that take 30 or more days to pay their invoices? Or, if you are a distributor, do you have clients that have placed large orders, depleting your capital resources? There are two trade finance tools that can help you in these instances. The first tool is called factoring financing. The second one is called purchase order financing.

Factoring Financing

Factoring is an ideal financing tool for companies that can’t afford to wait up to 60 days to get paid by clients. A factoring company can provide you with an advance of up to 85% on your slow paying receivables, providing you with working capital to pay employees and business expenses. Factoring is quick and can provide you with a payment within a day or so after invoicing.

Purchase Order Financing

PO financing is ideal for companies that resell goods to government or commercial clients. It can provide you with financing you need to deliver on your large orders. Purchase order funding works by providing you with funds to pay suppliers, enabling you to close more and larger sales. The transaction is settled once your customer pays for the goods.

Conclusion

Companies that need either domestic or import export financing can benefit from factoring and purchase order financing. And as opposed to traditional bank financing, both are relatively easy to obtain and can be set up in a few days.

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To be a successful importer you need three things – good suppliers, solid customers and the right financing. As a matter of fact, having the right financing can make or break your company.

Importers always play a delicate balance with their financing. The idea is to have as much financing as possible that is active (in use), backing up active purchase orders from clients. However, this delicate balance of living on the edge with financing has its drawbacks. What happens when you get an order that exceeds or exhausts your bank financing? Unless you have a great track record, it is unlikely that the bank will extend you further financing.

Your best option is to use purchase order financing.

Purchase order financing can cover up to 100% of the necessary financing to deliver on a purchase order from a large client. The financing company handles the process of getting a letter of credit (or similar method of payment) and paying your supplier. This enables your supplier to deliver the product and allows you to book the sale.

Purchase order financing also allows you to increase your purchasing capabilities dramatically, enabling you to book orders that in the past may have been too big for your company. With it, you can take your company to the next level.

As a financing tool, purchase order funding is easy to use. The process of establishing an initial account with a financing company can take a week or two. All qualified orders after the account is established can be financed in days. And, qualifying for purchase order financing is much easier than qualifying for a bank loan or line of credit. The main requirement is a purchase order from a solid commercial customer.

Purchase order financing is commonly used in conjunction with factoring (invoice factoring). Generally speaking, factoring is cheaper that purchase order financing. So, by combining both financing tools, you can lower the total cost of financing.

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