Types of Purchase Order Financing
“Po Funding”
My first Purchase Order? What to do, who do I call?
Purchase Order Financing can get complicated depending on the terms. I have had many companies calling with a PO’s wondering if we can finance them. This answer will depend on the terms of the PO
- Is this order for a finished product?
- Can you deliver on this order (ramp up)?
- How long have you been in business?
- How much money do you have invested?
Many start-ups expect us to fund 100% of the order, including shipping, insurance etc. Not going to happen. Why would we invest in something you have nothing invested in, duh, 100% our loss with no risk to you.
Let’s discuss the types of PO’s there are. Please remember there are niche investors for almost anything.
Traditional PO
1. Easiest: In what we call the factoring industry a PO must be for a finished product which once it reaches its destination it is inspected and excepted, at this point it is invoiced according to the seller terms. They can be upon receipt or 30 days net and so on then must be invoiced and sent directly to the buyer. This is the easiest type of PO that can be funded.
2. Blanket Orders
A Blanket Purchase Order is a type of purchase order designed to consolidate repetitive small purchases from a single supplier. It is essentially a form of open account which is limited in terms of the things which can be ordered, who can place the orders, the period for which it is to be open, and the total amount which can be ordered. This form of purchase order is useful for departments that have repetitive supply needs.
When To Use It
This method of procurement is to be used for repetitive non-capital purchases (e.g., maintenance parts, laboratory animals, gases, etc.)
When Not To Use It
Any department anticipating spending less than $2,500.00 for particular supplies during a one-year period should use the University Corporate Purchasing Card to make such purchases as needs arise. Because only certain types of repetitive purchases are suited to these methods of purchase, and because Blanket Orders do not generally provide for item-by-item priced checks, the issuance of Blanket Orders must be limited to situations where departmental needs clearly justify.
3. In Progress Purchase Order
In this case the seller of the product or services needs to purchase a piece of equipment or product that still needs further work to complete. This creates a problem because the product does not go directly to the buyer. This creates more risk for the investor, why? Now you have a product that needs work to complete. At this point the funding company is dependent upon your ability to deliver on time. In this case if you’re a new company your chances are slim to get funding.
These are just a few PO situations that occur daily.
Howard Hill
Pres. HRH Funding Solutions
http://www.hrhfundingsolutions.com
