Industries: Wholesaling and Distribution
Location: Kansas City, MO
How Much? $100,000
Just In Time P.O. Financing
The vast majority of business sectors in the U.S. have a 30-day payment cycle so when a business mails out the invoice to the client, they have 30-days to remit payment. Unfortunately, not every industry falls into this neat and tidy payment window. Military, aerospace, defense, and government contract factoring are just some of the sectors that fall outside this standard payment window causing all sorts of cash flow issues for the business.
While such industries can prove lucrative clients, collecting payment can require a whole lot of patience as well as steady cash flow and working capital. These industries can have a 45-day, 60-day or even 90-day payment cycle, which can hurt the cash flow of even the most robust company because payroll, overhead, and vendors still need to be paid within 30 days.
Bridge the Payment Gap with Purchase Order Financing
Not too long ago, an electronics components distribution company in Kansas City, MO found themselves in such a situation. The electronics company was grateful for the contract with a major aerospace company, yet it was unprepared to effectively manage the negative effect the 60-day payment cycle was having on its cash flow. Though the company was receiving orders, a good thing, it was not getting paid for them soon enough and therefore was struggling to pay its own vendors and meet payroll.
Fix Long-term Cash Flow Issues with PO Funding
Recognizing it needed to do something different with its financials, management reached out to an invoice factoring company to discuss purchase order financing or P.O. financing. Used primarily by those in manufacturing and distribution, P.O. funding works by selling current purchase orders to purchase order financing companies for up to 70 to 90 percent of their full value. Once they were vetted, the electronic components distribution company was able to sell its P.O.s, collects on the money in a mere 24 hours, and then use this cash it to pay vendors and suppliers on-time.
Moreover, the company was also able to set up a monthly purchase order funding cycle so it could bolster its cash flow and therefore have the cash necessary to take on much larger orders than it would have been able to otherwise. In this way, working with the invoice factoring company, the purchase order factoring enabled the company to actually growth and thrive instead of just cover its monthly bills.