Purchase order financing is a facility availed of by many businesses and is especially helpful if you are a reseller or an agent or an intermediary with limited liquidity that is requisite to finance your transactions to move materials and keep the business running. Purchase order financing is a viable solution for any business. To understand its need we need to first understand the business process.
Let us consider the case of, say a software reseller who has received a purchase order from a customer. A purchase order is a document detailing the type and number or units of the required product or service. All the details should be clearly mentioned here and there should be no room for ambiguity. Any ambiguity could lead to misunderstandings and lawsuits.
Now the reseller contacts his principle. Principle refers to the parent company, that is, the actual makers of the software who instead of hiring, training, managing and paying for a sales team have opted instead to outsource the selling part of the job to somebody already in the business, that it, they have partnered with a reseller, also known as partner. To understand why the reseller needs purchase order financing, let’s understand how a reseller operates.
A reseller, as the name implies, ‘resells’ the software, that is first buys it from the principle, then adds his own profit margin and sells it to the customer, hence essentially acting as some sort of distribution agent. Before the transaction between the reseller and the end user occurs, the transaction between the principle and the reseller occurs. The reseller will first have to buy the asset from the principle with his own money. Money that might not always be available and this is where purchase order financing plays a crucial part.
Purchase order financing is money offered on credit basis to resellers and similar businesses to keep the transactions going on based on the purchased order document. Understandably, some interest has to be paid to the creditor and resellers usually factor this into their profit margin with an added factor of safety in case the customer defaults on the payment. This loan can be paid off once the reseller gets paid by the end user. Purchase order financing is a crucial part of trade and commerce in today’s word and it plays a significant role in keeping the wheels of the economy running. Bernard Linney and his staff of factoring experts are ready to talk with you today about growing your business.