Purchase Order Financing
Letters of Credit
A Great Solution for Importers
Purchase Order Financing Helps Get the Job Done
HRH Funding Solutions offer purchase-order financing the funding of purchase orders from credit-worthy clients-through our affiliate partners. Our Purchase Order Financing Program helps clients who have been awarded a purchase order but do not have the capital necessary to fulfill it.
Purchase Order Financing Through HRH Funding Solutions Bridges the Financial Gap
Purchase order financing is beneficial to companies that need funds to manufacture or assemble products being marketing to creditworthy customers. We can help bridge this financial gap with purchase order financing.
The terms of the purchase order financing agreement are very specific, requiring the borrower to use loan funds for the purchase of certain materials needed to deliver goods to the end-customer. An example of this would be a clothing manufacturer using purchase order financing to purchase finished goods to be sold to a reputable department store chain.
Reasons for Using Purchase Order Financing
- Provides working capital for those who have insufficient funds to complete a transaction
- Lends expertise and security to international import and export transactions
- Provides working capital to businesses that are unable to obtain bank loans
- Helps to quickly expedite orders and sales
- Allows clients to do more business and expand growth
- Purchase order Funding can be used by Manufacturers, Importers, Exporters, or Distributors for:
- Issuing Letters of Credit
- Exporters, or Distributors for:
- Issuing Letters of Credit
- Payment to third party suppliers for finished goods
- Raw materials
- Direct labor
- Shipping, packaging, inspections, etc.
- Allows your business to maintain anonymity between end buyer and manufacturer by using the purchase order fund provider as the liaison
- Client gains expert operational support for smoother transactions
- Allows your business to maintain anonymity between end buyer and manufacturer by using the purchase order fund provider as the liaison
- Client gains expert operational support for smoother transactions
Purchase Order Financing
Letter of Credit
Standby Letter of Credit
Solutions
856-690-1695
Purchase Order Financing
"PO Funding"
Letters of Credit
What Does P.O. Financing Cost?
On average PO Financing rates are between 2.5 - 4% per 30 day period. If importing there are more considerations, such as: when is letter of credit to be issued, at the factory? at the port? ( normally its when leaving port and after inspection ).
A Big Consideration. You can not have PO Funding without having to factor! A factor must guarantee to buy out the PO when it hits U.S. ports, it then becomes an invoice and is factored. You now must consider the cost of factoring also. Factoring costs will normally be 2-3% per 30 days , less depending on dollar volume.
The Benefits of Purchase Order Funding include the following:
* Allows companies to grow without increased bank debt or selling equity
* Helps ensure timely deliveries to customers
* Increase market share
Direct Funding: we can pay the supplier direct and take ‘ownership’ of the goods.
Bank Letter of Credit: a commitment to pay backed by a bank institution primarily based upon the supplier providing the correct documentation.
Bank / BFS Standby Letter of Credit: as above but guarantees payment from the client to the supplier. Both Letters of Credit are governed by the regulations of the International Chamber of Commerce.
Supplier Guarantee: a commitment by HRH to pay cash generated from the receivable direct to the supplier.
F.A.Q.
What is purchase order funding?
Purchase order funding (a.k.a. PO funding) allows your company to purchase goods from your supplier or fund manufacturing of product to complete an order to your company from a creditworthy customer when you lack the working capital to do so on your own. The order may be for finished goods that you acquire from a domestic or foreign supplier, and then deliver to your customer. The order can also be for goods that require some amount of manufacturing or repackaging before being delivered to your customer. By being able to complete the order you maintain the relationship with your customer and have the opportunity to receive future orders (and profits) from that customer.
What types of purchase orders do you fund?
There are 3 types of purchase orders. They are listed in increasing degree of difficulty for obtaining purchase order funding. For the last two the financial strength of your company and experience of your company in doing the manufacturing or repackaging are very important.
Purchase orders for goods that are purchased from your supplier in a finished state (you are probably a distributor, wholesaler or importer that simply ships the product to your customer without any manufacturing or repackaging by your company)
Purchase orders for goods on which your company performs light manufacturing or repackaging (e.g. importing of electronic components that are tested and then repackaged before delivery to the customer)
purchase orders of component parts on which total in-house manufacturing is done to produce the product being purchased by the customer
When should purchase order funding be used?
- Purchase order funding should be used only when most other forms of financing have been exhausted. For example, the following options have been considered but cannot be used for reasons shown.
- credit lines cannot be expanded
- real estate, inventory, and equipment cannot be borrowed against
- receivables cannot be sold.
What minimum gross profit margin should the purchase order have?
We recommend a minimum gross profit margin of 30% on transactions in which purchase order funding is being considered. You should determine if the transaction will still be profitable after paying the purchase order and accounts receivable financing fees involved in purchase order funding.
What types of companies should use purchase order funding?
The following types of companies that are selling to a creditworthy customer can use purchase order funding.
- distributors
- wholesalers
- manufacturers having strong financial's and with experience in the type of product for which the purchase order funding is being requested
Can a manufacturer use purchase order funding if they do not have experience in manufacturing the product?
Maybe. It may be possible for a manufacturer to obtain purchase order funding if they subcontract the manufacturing of the product to a company with experience in manufacturing that type of product.
Is a personal guarantee required to obtain purchase order financing?
Yes. A personal guarantee is always required to obtain purchase order financing.
How important are the financial's of my company and its principals in obtaining purchase order financing?
The importance of the financial's of the company and its principals increases as the risk of satisfying the purchase order increases. For example, your company cannot be in danger of becoming insolvent during the term of the purchase order. The amount and complexity of the manufacturing required to deliver the product increases the risk that the purchase order will not be satisfied. Therefore, the financial strength of the company and its principals together with experience of the company in satisfying similar purchase orders becomes more important when deciding to approve a purchase order funding request.
My bank already has a lien on all my receivables. Can purchase order funding be gotten in this situation?
Maybe. It will be necessary to obtain a subordination agreement with your bank on that portion of the receivables generated as a result of the purchase order funding transaction.
What transaction size will will you consider for purchase order funding?
The range for standalone purchase order transactions is about $250,000 to $2,000,000. The minimum for recurring purchase order transactions is about $50,000 per month.
How much will you advance on the purchase order?
The amount that will be advanced on the purchase order will be the minimum required to get the order to an invoiceable state. For example, for finished goods, the advance would be the amount required to buy the goods from your supplier and might also include the cost of freight, insurance, and inspections.
In what form will the purchase order funding payment be made?
- The purchase order funding payment can be made in the following ways.
- check
- wire transfer
- ACH
- letter of credit (usually used on international transactions)
How is the purchase order funding advance paid back?
The purchase order funding advance may be paid back in the following ways.
Combined Finance - A Jewel In The Crown For Icon Live
US Supplier to US Buyer
You are an apparel manufacturer. You just received a large order but the suppliers of the goods will not extend any credit for the goods you need to fulfill the order. Your sales price to your buyer is $105,000 and your total cost to produce the goods is $75,000. Your gross margin is 40%. HRH Funding will purchase the goods for you from your supplier, and fund the transaction. On delivery of the goods you will raise the bill for $105,000. With an 80% advance HRH & Assoc. will then clear the Purchase Order Transaction of $75,000 and there will be $9,000 available for your working capital less the Purchase Order Finance fees. On collection of the receivable you will receive the unadvanced 20% less a small fee for the receivables funding.
Foreign Supplier to US Buyer
You are air conditioning unit distributor importing units from Taiwan. You do not need to touch the goods, they will be shipped directly to the buyer, a large U.S. retailer. The cost of the goods is $500,000 and you will sell them to the buyer for $700,000. Gross margins are 30% (after all importing costs). HRH & Assoc. opens a Letter of Credit to your supplier with performance requirements for your supplier to comply with relating to delivery. When the goods arrive satisfactorily your Taiwanese supplier will be paid. When the goods are billed the receivable will be funded and the purchase order finance paid from the funds generated from the receivables funding.
CALL
856-690-1695
Fax: 609-939-0573
HRH Funding Solutions
1271 N. Orchard Rd.
Vineland NJ 08360
HRH Funding Solutions
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