On the face of it, purchase order finance seems easy enough to understand. When you have a purchase order but you don’t have the money to fulfill that order, you go to purchase order finance lenders to provide you with the working capital you need. You then get the money to pay for supplies, you make or deliver the product to your customer, and both you and the lender get paid.
But it’s not actually that easy, and a lot of complications can crop up. After all, the lender has to deal with you as the borrower, pay the suppliers, and then collect the payment from the customer. And if foreign suppliers are involved, it gets even more complicated.
So what you really need is an experienced purchase order finance lender. So here are the things you need to find out about the experience of prospective PO finance lenders before you choose which lender to work with:
- Length of time in the business. This is an obvious question, but it’s crucial to ask nonetheless. There are too many new finance companies trying to help those who have been denied loans by banks, but some of them are still feeling their way around.
While these lenders are getting more experience, their education may come at your expense. They may in time figure out what to do when specific problems arise, but that may be too late to help you out.
- Focus on purchase order finance. Quite a few finance companies offer purchase order financing. But in reality, it’s not really their main focus. They actually specialize in factoring, and the PO financing is just a side business. They just offer it because it can lead to factoring deals.
Now these firms may work out when the PO financing is simple or small. But a lot of these PO financing deals can get complicated, and you need a specialist who knows what to do when complications come up. It doesn’t matter if a finance company has been in existence for the last ten years, when in reality they only do a couple of PO finance deals a year.
- Familiarity with your industry. Each industry has its own procedures and rules, so you need a lender who is already familiar with those rules. That’s why when you ask around for recommendations for a PO finance lender, you ask other people in your industry. It’s the same thing when you ask for references. You should find out if the lenders have references in your industry.
The lender is supposed to help you out with your financing. You need to focus on fulfilling that purchase order, and not have to waste time teaching your lender the ins and outs of your industry.
- Experience working with your particular customer. Your best bet is always a lender who has dealt with purchase orders from your customer before. Many of the bigger companies have complicated purchase agreement rules and regulations, and it will really help when your lender is already familiar with them.
Purchase order financing can be a maze filled with traps and dead ends. What you need is a lender who already knows the way so they can ensure you don’t get lost.