Growth has always been one of the most important goals of any business, and for your business that may mean opening new markets and client bases overseas. Of course, that can pose new risks for your company as well. Your bank may not be willing to give you the loan you need to fulfill all these purchase orders coming from overseas customers. But a lender that offers international PO funding will be definitely interested.
The way it works, is quite simple. If you have a large purchase order from a customer overseas, then the funding company offers you a percentage of that in advance. The percentage will depend on the reliability of that overseas company. You then get the money you need in order to fund the process that enables you to provide the goods the customer is asking for.
- Some foreign customers may not pay the upfront deposit. When a US company sells products abroad, it’s often SOP to ask for a deposit upfront before the company provides the goods. But not all customers abroad may be okay with this practice.
Some may take too long to come up with the traditional deposit, and they may not even be able to afford it. Other companies may simply be unwilling to put up the deposit, because it would then put a dent in their own cash flow reserves. These companies may then ask for (or perhaps more accurately, demand) open terms.
If you need that deposit to shore up your own working capital, then you may be forced to reject the deal, but with international PO funding you don’t have to anymore. Now you can boost your overseas sales with fewer restraints, while still enhancing your working capital.
That’s what the purchase order offers—the cash advance acts as the deposit in this case.
- Your bank may require you to purchase credit insurance. This may involve having to pay really high premiums. That can again put a strain on your working capital and make I more difficult for your business to operate. With the purchase order financing, you don’t have to buy the insurance any more. Your payment comes after the customer has paid in full. The payment goes to your lender, who takes the principal and the fees from the payment before the rest goes to you.
- Foreign purchase orders aren’t rated highly by many lenders. Even if you are considering some form of asset-based loans from your bank and other lenders, they may not consider your foreign purchase order eligible. But there are the assets that international PO funding companies are looking for.
- The risk may be too much for you. Even though the prospect of overseas growth is appealing, the very distinct possibility of write-offs may intimidate you. But the purchase order funding can protect you from such risks.
The world is getting smaller, and so is the domestic market. If you wish to grow, then that may mean selling overseas. There’s always the risk, but with purchase order funding then it can be a grand opportunity for more profits.