How Purchase Order Financing & Factoring Work Together
We have all seen episodes of Shark Tank where clients give up equity just to fill an order from a big box retailer. (I, for one, take to yelling โcall me before you take that deal!!โ at my television whenever I catch these faux-pas being broadcast because I know thatย Prestige Capitalย could swiftly partner with our purchase order colleagues to fill these contestantsโ orders without them having to dilute their equity!) Alas, the contestants often take the deal only to realize after itโs too late just how expensive that deal was: Their sales may grow but they end up giving away too substantial a portion of their profits to investors.
“Alas, the contestants often take the deal only to realize after itโs too late just how expensive that deal was: Their sales may grow but they end up giving away too substantial a portion of their profits to investors.”ย
Receiving your first big order
When a company forms and tries to sell a product, there is always the initial excitement of finally winning the order. However, that wistfulness can swiftly morph into panic when the company starts to realize they do not have adequate cash flow to fill the order โ nor have they established credit with their supplier or co-packer.
This inability to fill an order can happen for a variety of reasons. Most commonly, a supplier may demand a hefty pre-payment, a customer may only be willing to pay upon receipt of the ordered goods, or the company may have negotiated payment terms with a supplier, co-packer, or customer that span up to 60 days or more.
How to Finance this big order?
An often overlooked means of surmounting the financial bind that being unable to fill an order can put companies in is to secure purchase order financing. Unfortunately, many companies arenโt aware this form of financing exists and, as a result, they knock on all the wrong doors prior to discovering how much it could benefit them.
