The Benefits of Purchase Order (PO)Financing

If you use a third-party manufacturer to assist with product distribution, you're no stranger to strict supplier payment requirements. Many suppliers require excellent credit, an upfront deposit before starting production, or payment in full before shipment. Unless you have ample working capital to cover the costs or can secure traditional bank financing, your business might miss out on opportunities to expand.

However, business owners can use purchase order (PO) financing to address this challenging situation. This financial solution provides the funding you need to process larger orders, exceed revenue targets, and position yourself as a higher-tier distributer within your industry.

How Does Purchase Order Financing Work?

If you have to pay for products in advance, PO financing offers a way to remove financial barriers that interfere with product fulfillment. A trade finance partner provides a letter of credit to the supplier to draw on for payment. Businesses whose suppliers require upfront payment use this tool to finance all points of product production, from creation to customer delivery. In some instances, where the manufacturer is US-based and/or doesn’t require a deposit, payment can be made by wire transfer, after a completed inspection.

For example, Town and Country and Peoples Prosperity Bank's financing partner, Liquid Capital, provides your supplier with a letter of credit that allows for financing up to 100% of the cost of the product until it is in the customer's hands.

The supplier uses the letter to collect payment — pending a quantity and quality inspection of goods at the shipping point. Next, the related invoice is financed when the product is delivered and accepted by the customer. The supplier payment and associated fees are netted from the proceeds, with the balance remitted to the distributor as immediate cash flow.

Purchase order financing provides a simple 6-step solution.

Step 1. You receive a purchase order from a customer.

Step 2. You place a purchase order with your supplier.

Step 3. The financing partner provides your supplier with a letter of credit.

Step 4. Your supplier produces the goods and receives payment.

Step 5. The goods are shipped to your customer, and an invoice is generated.

Step 6. The invoice is factored in, and the purchase order financing facility is repaid to the financing partner.

NOTE: PO financing works in combination with Liquid Capital's Accounts Receivable factoring solution, which kicks in once the sale to the customer is final. Factoring provides you with working capital financing based on the value of your accounts receivable and is used to pay off your PO financing obligation.

Additional Purchase Order Financing Benefits

PO financing allows the distributor to demonstrate financial capacity to their customers, increasing the likelihood of subsequent orders while strengthening the business relationship. You can customize your financing needs based on transaction dollar amounts, order size, seasonal preferences, or other details relevant to your business goals.

Why Choose Liquid Capital as a Financing Partner?

Liquid Capital is a full-service working capital and trade finance company that supports businesses and provides them with multiple benefits that include

• Immediate funding upon initial approval
• Partnerships with local decision-makers who understand the local market
• Full reporting transparency that includes invoice images, collection notes, and payment details
• Quality, quantity, and compliance assurance as goods are inspected by an international agency at the point of shipping

And much more!

How Do I Get Started?

Overcome supplier payment challenges with purchase order financing. Secure the working capital you need to meet customer demand for your products by contacting Town and Country and Peoples Prosperity Bank's Service Solution Center, visiting a convenient branch location, or meeting with a Commercial Business Banker today!