If you ask the owner of a successful re-seller or importer company to identify their biggest challenge, their common answer will be: lack of working capital. Working capital is the lifeblood of all resellers and importers, enabling them to pay suppliers and allowing them to grow their businesses. Many times, their ability to grow is directly linked to their access to working capital.

So, where do re-sellers that wish to take their businesses to the next level go to get working capital? The bank? Unlikely, as banks are tough sources of business financing. To qualify for a business loan you’ll usually need to provide reports showing three years worth of profitable operations – and – the owner will need to have a spotless credit record. Oh, and if you are a startup, don’t bother. Few banks will provide working capital to startups.

Are there any alternate options? Fortunately, the answer is yes. Purchase order financing (commonly known as po funding) is a great source of financing for startups and growing companies that have exhausted their bank financing options. However, you won’t find PO Funding at your local bank, you’ll find it at your local factoring company.

PO funding is an ideal source of financing for resellers, wholesalers, importers, or just about any business that buys goods from third parties and resells them. PO financing covers up to 100% of your supplier expenses, enabling you to close big sales and deliver on them. As opposed to traditional financing, purchase order financing uses your purchase order as the actual collateral. There are no set maximum limits, and you can finance as many orders as you want, provided that they come from commercially credit worthy businesses or the government, and have profit margins of 15% or more.

Purchase order funding works as follows:

1. You get a purchase order from a client. You place an order with your supplier
2. The purchase order finance company pays your suppler using a letter of credit
3. Your supplier delivers the product and your client acknowledges receipt
4. Your client pays for the goods and the transaction between the parties is settled

Purchase order financing can be an affordable financing option that allows you to expand your business when your bank financing options have been exhausted. It can truly enable you to close very large orders, with confidence, and take your business to the next level.

Most new and growing resellers and wholesalers have a very common dilemma. Their suppliers insist that they pay for goods up front. However, their own clients insist on getting 30 or 60 day payment terms. Few companies, especially startups, can carry the costs of operating the business for 60 days while waiting to get paid. And, those that can wait that long to get paid usually do so at the expense of future growth. They survive by turning orders away and downshifting their businesses, all while waiting to get paid.

Is bank financing the solution to this dilemma? Hardly. Banks don’t usually lend to startups. And when they do lend money, the process is long and complicated. Furthermore, most banks will require that the business owner present 3 years worth of audited financial statements showing a profit before making a loan.

But what is your business does not qualify for bank financing? There is an alternative called purchase order financing, and it offers a number of benefits that exceeds what most banks can offer. Its benefits include:

1. PO financing is available to startups and growing companies
2. It covers up to 100% of all supplier expenses
3. PO funding grows with you and is based on your sales potential
4. Can be set up in days – rather than months

So, what is purchase order funding? It a financial option that provides you with funds to deliver the goods on your confirmed non-cancelable purchase orders. It provides you with the necessary business financing to pay your suppliers, freight and associated fees. The transaction is settled once your client actually pays for the goods and requires few out of pocket expenses. The collateral for the transaction is your client’s ability to honor the purchase order and pay for the goods.

Factoring companies, which offer po financing, charge for their services based on a number of variables such as the size of the transaction, the complexity and the financial strength of the customer paying for the goods. The charges will be either a percentage of the utilized funds – or in some instances – a percentage of the sales price.

It is also common to use po financing in conjunction with accounts receivable factoring. Factoring is used to finance the invoice that is generated from the po financing transaction and it’s used to close the purchase order financing line. Invoice factoring is usually cheaper than po financing, so using the two together helps reduce the total cost of the transaction.