Who Finances Inventory and Uses Purchase Order Financing

It’s time. We talked about purchase order financing in Canada, how PO financing works, and how inventory and contract financing under that purchase order actually works in Canada. And yes, as we said, it’s time… to get creative with your financing challenge, and we’ll show you how.

And as a startup, coming second never really counts, so Canadian businesses need to be aware that your competitors are using creative financing and inventory options for growth and sales and profit, so why not your company?

Canadian business owners and finance managers know that you can have all the new orders and contracts in the world, but if you can’t finance them properly, then you’re usually out-of-competition with your competitors.

The reason purchase order financing is gaining popularity generally stems from the fact that traditional financing through Canadian banks for inventory and purchase orders is very, in our opinion, difficult to finance. Where the bank says no is where purchase order financing begins!

It is important for us to clarify to the client that PO financing is a general concept which can actually include order or contract financing, inventory that may be required to fulfill the contract, and receivables resulting from the sale. So this is definitely an all-encompassing strategy.

The added beauty of OD financing is that it is creative, unlike many traditional and routine types of financing.

It’s all about sitting down with your PO financing partner and discussing how unique your particular needs are. Usually when we sit down with clients, this type of financing revolves around the requirements of your company’s suppliers, as well as customers, and how these two requirements can be met with a timeline and financial guidelines that make sense to all parties.

The key elements of a successful PO financial transaction are solid, irrevocable orders, qualified customers from a credit score perspective, and specific identification around who pays whom and when. As simple as that.

So how does this all work, ask our clients. Let’s keep it simple so we can clearly demonstrate the power of this type of financing. Your company accepts orders. The PO finance company pays your supplier in cash or a letter of credit – with your company then receiving the goods and fulfilling orders and contracts.

The PO finance company takes title to the purchase order, the inventory they have purchased on your behalf, and the receivables resulting from the sale. As simple as that. When your customer pays according to the terms of your contract with them, the transaction is closed and the purchase order finance company is paid in full, minus their financing fees which typically range from 2.5-3% per month in Canada.

In certain cases, financing inventory can be managed separately, but as we have seen, the total sales cycle often relies on orders, inventories, and receivables pledged to make this financing successful.

Talk to a credible, trusted and experienced Canadian business financial advisor about how this type of financing can benefit your company.


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