Purchase Order Financing is provided to businesses that produce goods, or provide services “in house” and are having difficulty filling orders because of larger than anticipated demands. Financing is based on the amount needed to produce, insure and ship the product, not on the amount of the invoice.

Fees tend to be higher than with selling accounts receivable invoices, and advances tend to be lower as there is a greater risk to the investor. However, Purchase Order Financing is often an excellent option for companies needing cash to complete a large order. In fact, many companies find that with Purchase Order Financing, they are able to secure larger, more profitable contracts than before.

Here is an example of how Purchase Order Financing allowed a manufacturer to grow, and eventually be sold:

BWO Manufacturing

The problem:
BWO had been the client of a bank for about 5 years, with a loan covering $400,000 for inventory and $400,000 for receivables. However the bank sensed that there was something wrong and wanted to get BWO off their books.

The solution:
A Purchase Order investor was brought in to look at the situation. After verifying that BWO did have $4m of purchase orders from good companies, and that the factory would be able to perform according to the stipulations of their contracts, the P.O. investor was able to present the bank with a solution whereby they would a) buy the receivables and b) work on the remaining $400,000 – contracting to pay $10,000 off the top of each contract until such time as the $400,000 was paid off.

The Benefit:
In this case the bank was paid off in 5 months, as opposed to the 2 _ years that they had calculated it would take. BWO became so profitable that the company was sold 10 months later