Industries: Wholesaling and Distribution
Location: Los Angeles, CA
How Much? $500,000
It is an all-too-common problem faced by businesses in the wholesaling and distribution sector: your suppliers demand fast, expedited payment while your clients take their time paying you, about 45-days on average. Unless you have some very deep cash reserves or a rich uncle you can borrow money from when you need to, such a problem, if left unchecked, has the potential to shut down your businesses for good.
Sell Your POs for Cash with Purchase Order Funding
A wholesale distribution company in Los Angeles, California recently found itself having to cover a very large payment lull for this very reason. It was in need of half a million dollars and was fighting to keep afloat despite orders coming in. Its suppliers were insistent on collecting payment immediately and were not very forgiving when the company tried to explain why this proved problematic. The company explained the problem wasn’t due to a lack of orders — the distribution company was able to show its suppliers the purchase orders — but because of routine delay in payment for these orders. Unfortunately, the suppliers were unsympathetic and threatened to take their business elsewhere could the company not meet its demands.
Showing the suppliers the actual P.O.s proved a good idea. The company learned that by working with purchase order financing companies, they could in fact sell the document for immediate cash in what’s known as purchase order financing or simply P.O. financing. Though the distribution company was unfamiliar with this method of wholesale factoring, it decided to give it a shot as it needed the cash and could not afford to wait for customer payment any longer.
Purchase Order Factoring Helps Company Fulfill Large Orders
Much to their delight, the Los Angeles-based company was pleased with the results. In addition to getting the cash immediately and being able to meet the demands of their suppliers, the factoring company handled the entire process with grace and ease. Far less of a headache than the distribution company thought it would be, the wholesale factoring experts explained how the process worked in easy to understand terms.
It then reviewed the details of the $500,000 transaction. The company would receive between 70 to 90 percent of the purchase order factoring up front and the rest (minus fees) on the back end once it received payment (about 45-days). The company now feels confident it has a factoring company it can go to for cash when it has to fulfill a big order.