Purchase Order Finance Lenders: Better than Credit Cards

Using a credit card is one of the most popular options for getting additional finance. Everyone’s familiar with them (more or less), and for that reason even small business owners are using credit cards (personal or business) to finance their operations.

The National Small Business Association reported that in the years 2007-08, about 44% of small business owners used credit cards for financing.

But there are other alternative options for small businesses when it comes to financing. Purchase order financing may work in your case, and you may find that with the help of purchase order finance lenders you may actually help your company get more business.

How PO Financing Works

The concept of PO financing is very simple. If you have a sizable purchase order but do not have the capital to fulfill it, then purchase order finance lenders can step in and provide you with the financing you need.

They pay your suppliers so you can fulfill the purchase order. You may get only about 50% to 70% of the value of the purchase order towards paying your supplier. When your customer pays up in full, you then get the rest of your money, minus the fees charged by the lender.

Why PO Financing is Better than Using Credit Cards

In some ways, PO financing is better compared to using your credit cards.

  1. Using PO financing doesn’t affect your credit score. Using your credit cards can really harm your credit score, especially when you max out and have trouble paying your debt. In fact, credit card misuse is one of the more common reasons for plummeting credit scores. Too many people don’t know how to use them properly.

But with PO financing, the deal doesn’t even qualify as a debt, and therefore it doesn’t affect your credit score. PO financing is more like getting an advance on the eventual value of the purchase order.

  1. You pass on the risk to the purchase order finance lenders. There are many possible reasons why the deal may be successful. The customer, for example, may refuse to pay for any number of reasons. They may say that the items were not in the quality they want, they may declare bankruptcy, or they may just simply change their minds.

But that’s the lender’s responsibility. They’re in charge of the collection, not you. And if they are unable to collect, you don’t have to return the advance you got for paying your suppliers.

Now if you used credit cards, you have to pay back what you borrowed, even if the customer didn’t pay up.

  1. PO financing comes with reasonable costs. Even though the risk is all on the lender, the fees for the advance are actually comparable with the rates charged by credit card companies. And what’s more, you usually get more funds to pay for suppliers through PO financing than what you can get from credit cards.

PO financing may only be a short term solution, but it’s better than not being able to fulfill a purchase order at all. You forge better relations with your customers by providing them what they need, and you earn a profit in the end. That’s much better than not getting the business at all.

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The 3 Crucial Questions Purchase Order Finance Lenders Ask

Banks take a long time to decide whether or not to approve a loan application. Like all lenders, the primary concern of banks is to make absolutely sure that they will get their money back after a set period of time, plus interest.

And that’s why banks take a very long time to evaluate all your financial documents. They want to know that your company will still be up and running for the duration of the loan.

They will also want some form of collateral so that if you’re unable to pay back the loan they can at least get some thing from you to avoid losses. And of course, they will also need to see that you have an excellent credit history, as this indicates that you have a track record of actually paying back your loans.

But in purchase order finance, the state of your finances isn’t all that relevant. Neither is your credit history. The purchase order serves as collateral in a sense. What lenders consider important are the answers to these 3 questions:

  1. How capable are your suppliers? In purchase order financing, the lender opens a line of credit to pay your suppliers. But you can’t fulfill the purchase order if your suppliers are not able to fulfill the needs of your customer. The suppliers must be able to deliver the goods in the required quality and volume on the timescales agreed upon.

What that means is that you can’t just pick a supplier that offers the cheapest product. You need suppliers who can meet all your requirements.

  1. How good are you at executing the purchase order? While your credit history may not be all that important to the lender, your ability as a seller is crucial. The task may just be as simple as getting the products needed and then delivering them as is to the customer.

Or it may be more complicated; you take raw materials and turn them into finished products for your customers. Either way, you need to have a proven track record of fulfilling these orders.

It’s for this reason that many PO finance lenders insist on a completion schedule. You need to make sure that you meet the requirements.

  1. What’s the credit quality of your customer? One of the first things the lender will do is to verify the purchase order to see if it’s authentic. Purchase order scams are not uncommon nowadays. Then they will check to see if the customer is reputable and has a good credit rating. It’s their ability to pay, not yours, which really concerns the lender in this case.

The answers to these questions may determine the size of the advance you can get, the types of fees you need to pay, and even whether your loan application is approved or not.


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The Different Kinds of Construction Working Capital Loans

When you’re in the construction industry, it’s quite normal to find yourself in dire need of working capital every now and then. Sometimes jobs are scarce, so you have no money coming in. It’s also not an industry in which payments are made promptly. You generally have to wait for 30 days to get your money, and sometimes clients may stretch that period out even further. If you rely on revenue for your working capital, then sooner or later you’ll have a problem.
The solution, in most cases is to get a construction working capital loan. There are several options available for you:

1.Personal loans. For some people, the best sources of loans are family and friends. They’re easier to approach, and generally much more flexible and generous in their terms. However, mixing business and your personal life isn’t always a good idea.

2.Equity funding. This is a loan secured by the value of your construction company. You can get a loan from friends or from investors and then use a percentage of your company as collateral. A home equity loan, in which you use your home as security, also falls in this category.
Bank line of credit. This is like having a credit card for your construction company. You’re allowed a maximum amount of money to borrow, and then you just pay interest on the actual amount you use.

3.The approval of this type of loan, the interest rate, and the maximum amount of the credit line will depend on the relationship you have with your lender, along with your credit score. In general, the interest rate is about 1 to 2 percent above the prime rate.

4.Short term loan. This type of loan involves the use of collateral (usually construction equipment you own), a fixed interest rate, and a specific repayment period (which is usually a year). But if you have an excellent credit history and you have a great working relationship with your lender, you may be able to secure a short term loan even without collateral.

5.AR or PO loans. You may also get a loan for your working capital needs if a lender agrees to consider your accounts receivable or your confirmed purchase orders. A loan like this is ideal if you don’t have the working capital to meet a particular sales order. But you will need a sterling reputation with a proven history of meeting obligations and debts before a lender can agree to this type of loan.

6.Factoring. Technically, this is not a loan at all, although it is a form of financing. You exchange the future value of your accounts receivable for current funds. You typically get about 80% of the value of the invoice, and you get the rest (less the factor’s fees) when the client pays in full.

7.Trade creditor loan. This is a loan that may be offered by a supplier. You get your loan only if you place large orders of supplies with them. You’ll also need a good credit history to be eligible for this type of loan.

Take advantage of all these opportunities. Paying interest on a loan is much preferable than running out of working capital.

A Typical A/R Loan

Accounts receivable loans are a special type of asset based lending. In this case, the asset is not the inventory, the equipment, the building or land. The assets in this case are the accounts receivable, which serve as proof that you will receive payments from your customers in 30 to 90 days.

For a clinic, A/R means the payments which can come mostly from insurance companies paying for the treatments of your patients. For a medical device company, the customers may be hospitals and clinics who bought equipment you manufactured or distributed.

Usually, a loan with accounts receivable as security will get you about 70% to 90% of the value right away. If you receive a loan, you will have to pay an annual interest rate which can be anywhere from 6% to 20% of the loan amount.

You still need to process and handle the invoices yourself, and the collection of the payments may still be your responsibility. However, your lender may insist that all customer payments should be immediately sent to them.


Invoice factoring is a special kind of loan, because technically it is not a loan at all. It involves a “sale” of the invoices. Like an A/R loan, you get an advance on the value of the invoice, and the factor collects the payments for you. You can get regular reports as to the status of the invoices. When the customer pays in full, the factor then gives you the rest of the payment after it has deducted its fees.

Factoring can have several variations, depending on the agreement. In some cases, a factor may not be able to get its advance back from you if the customer files for bankruptcy. In all other cases, the factor can demand its advance back if for any reason the customer defaults on the debt.

There are several benefits to factoring. One is that a small clinic may be spared of having to worry about collecting their accounts receivable altogether. The factor can handle them for you, and you won’t have to talk to insurance companies who are almost always reluctant to make payments. Factors may even investigate potential customers and identify the ones which have a poor credit history. If you own a medical device company, such customers represent a high risk to your business.

Regardless of what kind of 2014 medical A/R loans you get, in general they are much easier to secure than regular and (unsecured) bank loans and lines of credit. It’s even possible to get this type of financing even if your own credit is not so good. What’s more important to lenders is that the credit of your customers is excellent. After all, the payments for the loan ultimately come from your customers.

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The Immeasurable Value of International Receivable Lenders

The Immeasurable Value of International Receivable LendersOne of the many benefits of the Internet is that you no longer need a physical presence overseas in order to become an international business. The Internet enables you to communicate and deal with other companies from other countries much more easily.

But of course, selling overseas can be challenging. You have to think about shipping and delivery. You have to convert currency, and even small changes in currency can affect your profits. The rules about taxes and duties are different in other countries, and you may have to change how you market your products to work more effectively with different cultures.

If most of your business is B2B, one way of getting all the help you need is by enlisting the help offered by international receivable lenders.

  • As an international seller, you’ll need to compete with local suppliers. That may require you to offer more attractive prices and terms. You don’t have to insist on getting cash on delivery, because with international receivable lenders you may get about 80% (or even more) of the value of the invoice in a day or so.
  • Every business needs financing at some point, but many lenders won’t accept international accounts receivable as collateral. But with international receivable lenders, you get the financing you need quickly. As a bonus, these lenders can even provide the money you need in the currency you want, for your convenience.
  • These international lenders can also help you find out which foreign companies deserve credit. These experienced lenders either have the knowledge about the companies, or they already have the tools in place to make an accurate evaluation of their credit worthiness. You will then know which foreign companies pay on time, and which ones pay late or don’t pay at all.
  • When the companies are credit-worthy, you may then be able to offer generous terms. But for those companies who have poor payment histories, you can insist on cash deals to protect yourself.
  • These lenders may also have the infrastructure and personnel in place so that they can collect from your clients much more effectively. You don’t have to hire and train collectors of your own, and this saves you a lot of trouble, time, and money. The collectors of the lenders already know the language and the customs, and this can help you avoid cultural misunderstandings.
  • Some lenders may even offer a form of insurance against bad debts and late payments. With this service, you no longer have to worry about getting your money at all. Either your customer pays you, or the lender will.
  • There are several types of international receivable lenders. Some will offer straight loans with your invoices as collateral, while others may offer factoring. If you are in the B2B industry, and you give your clients payment terms, factoring may be a viable option. Tapping the international market has its opportunities and challenges, but with the right lenders you can navigate international business waters much more safely.

Myths about Construction Accounts Receivable Financing

Myths about Construction Accounts Receivable Financing
Myths about Construction Accounts Receivable Financing

Many companies in the construction industry need more cash flow in order to help their business become more stable. The problem is that banks aren’t exactly in the mood to lend them money these days. Besides, the entire loan process when dealing is interminable and complicated. That’s where construction accounts receivable financing comes in. You use your accounts receivable and you get an advance of up to 90% right away. Then when the account is paid in full by your customer, you get the rest of the money after the fee paid to the factor has been deducted.

There’s still a bit of confusion regarding construction accounts receivable financing, so let’s try to dispel the myths.

  1. You need the help of a factoring broker. Loan and factoring brokers can help, but in most cases they represent the lenders. If you need help so that you can choose the best factor for your construction business, what you need is actually a factoring consultant.
  2. With a consultant, you have an expert that acts on your behalf and not on the behalf of the factor. You then have someone who can give you great advice when you negotiate the terms of the financing agreement.
  3. You have to give the factor all of your accounts receivable. This is completely untrue. When you use your accounts receivable to get the financing you need, total control is still in your hands. The factor doesn’t get to pick and choose which accounts receivables to factor. They can, however, pick and choose from the accounts receivable which you choose to submit. The factor assesses the creditworthiness of the business of the debtor.
  4. The factor does file a UCC lien on your company’s accounts receivable. This is done so in the event that the debtor doesn’t pay, they have a way of getting back their money. It’s very similar to how a bank will tag all your assets with a blanket lien so that they can recover their money if you default on your loan payments.
  5. You don’t have to pay back the advance if the customer doesn’t pay. It all depends on the agreement you have with your factor, but in virtually all cases this is not true. If the customer doesn’t pay, then you’re held liable for the advance.
  6. There is such a thing as non-recourse factoring, in which factors will have to shoulder the loss should the customer become unable to pay because of bankruptcy. But this is the only exception. If they don’t pay because of a dispute with you, the factor isn’t involved and you have to return the advance. In some cases, that means giving another account receivable and using that money to pay off the advance.
  7. Availing construction accounts receivable financing is a sign that your company is having financial problems. Many construction firms actually prefer this form of financing because it can actually be very helpful. After all, the factor takes over the collection, and they help assess the creditworthiness of potential customers. What’s more, the lack of cash flow can kill the business, and factoring is a way for you to avoid that.

The Many Benefits of Medical Business Receivable Funding

If you’re setting up a medical clinic, then you absolutely will need a bank loan unless you have enough capital to take care of all your expenses in the next 6 months. But because of the nature of the current health care system, more and more doctors are turning to medical business receivable funding.

With this funding option, doctors don’t have to wait for a very long time until the insurance company gives them their payments. That’s because, with medical business receivable funding, they can get a large chunk (as much as 80%) of the value of the receivable – in advance. Then when the insurance company pays the lender, the doctor gets the rest of the payment minus the fee the lender charges.

There are several reasons why receivable funding has become very popular in the health care industry:

  1. Doctors get the funding they need quickly. Banks take a very long time to approve a loan, and sometimes they may not provide a loan at all. But clinics need lots of working capital, all the time. There are payroll and overhead expenses, and those needs are immediate. Clinics also need to buy the latest medical equipment to provide the best care for their patients and to compete with other clinics and hospitals in the area.
  2. Doctors are spared from dealing with insurance companies. Dealing with insurance companies is one of the frustrating things about running your own clinic. Doctors often have to deal with insurance companies who just won’t pay the amount they billed. And then sometimes the doctors have to deal with a lot of paperwork. Even filling out information in the reimbursement forms is pretty tedious.

Many doctors are fed up with such requirements that they are saying no to insurance altogether. But with medical business receivable funding, you spare yourself from unnecessary headaches. That’s because it’s the lender who will collect the payments from the insurance companies.

  1. There’s no reason to hire staff or third-party billing systems for collections. This is another way for a doctor to save money. Dealing with insurance companies often means having to hire staff just for that purpose. But collecting the payment is part of the funding company’s services. So not only do doctors get the money they need, but they get this service as part of the package.
  2. Doctors will know in advance which insurance providers to turn down. Dealing with the insurance company sometimes result in underpayment. There are some insurance companies who won’t pay what the doctor charges them. Since the doctor believes that they didn’t get the money to which they were entitled, they may then react to this by no longer accepting patients who use that particular insurance company.

But with medical business receivable funding, insurance companies are investigated in advance. Also, a finance company that specializes in medical funding often has a list of insurance companies known to pay late or underpay. The doctor can then decide right away which insurance companies to refuse so that they don’t have to be underpaid.

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How Easy Is It to Get Construction Working Capital Loans in Canada?

In the US, banks have become considerably more reluctant to loan money to small businesses ever since the 2008 recession occurred. This is quite understandable, when you think about it. Many small business owners have less than stellar credit and their collateral is negligible. Many banks do not consider these as encouraging signs. But to the north, getting construction working capital loans in Canada is actually not so much of a problem.

How Easy Is It to Get Construction Working Capital Loans in Canada?
How Easy Is It to Get Construction Working Capital Loans in Canada?

Helpful Banks in Canada

There are many signs which indicate that banks in Canada are much more reliable sources of funding for small and medium enterprises (SMEs):

  • As of December 2013, the domestic banks in Canada have authorized the release of more than $197 billion in credit to SMEs all over the nation. Authorized bank lending to SMEs in Canada has risen by at least 20% since 2008.
  • Banks are also expediting the loan application process and are offering more flexible solutions. This is especially true for smaller loan amounts.
  • Banks in Canada have astonishing approval rates for small business loans, with 90% of all SME loan applications approved. In contrast, US banks approval rates for loans of more than $100,000 were only 60, and loans for less than this amount were approved only 46% of the time.
  • Among the SMES who did not seek some form of debt financing, 88% of them said that they simply had no need for it. Only 3% did not seek a loan because they believed their application would be denied, while only 1% regarded the cost of the financing was too high.
  • According to Canadian SME surveys, access to financing was not among their most pressing problems that affected their growth. Of more concern to SMEs were rising operational costs, unpredictable fluctuations in the demand for their products and services, and increasing competition.
  • Banks can also participate in the Canada Small Business Financing Program (CSBFP). Here, the Canadian government shares in the risk with lenders in order to stimulate business in the country. Startups and small businesses which gross less than $5 million in annual revenues may qualify for CSBFP loans.

Supplementary Solutions

While it may seem that Canadian SMEs do not really need an alternative to traditional bank loans, there may still be a need for a supplementary solution. This is very true in case of unanticipated orders and contracts for which working capital levels are inadequate. When there are new construction projects, you may not be able to handle having to meet the payroll and pay for supplies and equipment rentals. You’ll need a quicker solution than a traditional bank loan.

And that’s where purchase order financing comes in. The finance provider may enable you to get a percentage of the value of the purchase order in advance, while it guarantees your suppliers that they will be paid once they complete their deliveries. You may also get the construction working capital loans in Canada you need to meet payroll and rent equipment. Your finance company essentially becomes your non-permanent partner in making sure that you fulfill the contract without requiring you to give up any equity in your business at all.


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Do You Have the Working Capital for Christmas Seasonal Sales Spikes?

If you run a wholesale distribution company, functioning as the bridge between local retailers and overseas manufacturers, Christmas seasonal sales spikes represent a huge chunk of your business for the year. And that means you really need to prepare adequately. You have to make sure that you optimize your supply chains and distribution networks so that you can quickly deliver high volumes of products to needy retailers eager to take advantage of the consumer desire to spend for gifts.

Visit Neebo Capital to get working capital to meet holiday orders.
Visit Neebo Capital to get working capital to meet holiday orders.

If you have the foresight, then you should have prepared for this eventuality long before the Christmas season even started. But even the most prepared may not have enough working capital to ensure that they have the products ready to deliver for the retailers. It’s not uncommon for successful wholesalers to get large volume orders for which they may not have reserve cash to use.

Fortunately, there are options which you can consider so that you actually have the money needed to buy supplies:

  1. You can arrange for a loan or a line of credit from a bank. A line of credit is probably your best bet for this scenario. With it, you can draw only enough money for your needs, so that you don’t pay interest on money you don’t need to spend. It’s very easy to ask for a loan for a specific amount of money that turns out to be either insufficient or too much.

However, many wholesale companies have long realized that banks are unreliable partners when it comes to emergency funding. You may or may not get your loan, as the requirements can be pretty strict regarding your credit and your collateral. And you may have to endure a protracted loan application process in the bargain.

  1. You can arrange for invoice factoring to bolster your cash reserves. When you deal with retail companies, you have to accept the fact that they do not pay you cash on delivery of the products they ask for. They’ll make you wait for at least 30 days. Sometimes the wait can even be as long as 90 days. This means that you can’t access those funds as a way to buy the supplies for your retailers.

But you can access those funds with invoiced factoring. The factor gives you an advance on the value of the accounts receivables, and this can reach up to 80% or even 90% of the value of the invoice. You get the rest later when the retailer finally pays for the previous products you’ve shipped them. But with this advance, you get enough money to buy supplies if you receive a large order and your current cash reserves are inadequate to cover the volume of the order. Invoice factoring has a higher approval rate, your credit doesn’t matter, and the application process is much faster.

  1. You can use the purchase order to obtain additional financing. Basically, the financing company can provide half (or even more) of the value of the purchase order. With this method, you can then bolster your cash reserves to meet the demands of Christmas seasonal sales spikes.

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Factoring in China: Why the Chinese Factoring Market is the Biggest in the World

China is still officially a communist nation, but you really wouldn’t know it from the rising number of multimillionaires living in the country. Theoretically, that’s not supposed to happen in a country where everyone’s supposed to be equal even financially, but times have changed in China. Now they even have billionaires. China has 152 billionaires in 2014, adding 30 more since 2013.

China now also has numerous SMEs (small and medium enterprises), and while these business owners may not become billionaires anytime soon, they do want to be richer. And factoring in China has paved the way for that to happen. The growth of factoring in the country has pushed factoring into a $3-trillion industry worldwide, and now factoring in China is the biggest in the world. Over the last 5 years, factoring in China has increased by 54% per annum.

So what accounts for this phenomenal growth?

  1. Capital flight. China is expanding its overseas investments, and now the country is investing more overseas. Its overseas investments are greater than what the foreign companies are investing in the country. In the first quarter of 2012, China had a $56.1 billion surplus. By the second quarter of 2012, there was a deficit of $71.4 billion.
  2. Lack of SME access to bank funding. According to an estimate made by a Chinese brokerage, only 3% of the 42 million SMEs in China are able to access traditional bank funding. Most traditional lending banks are only providing access to funds for the biggest and safest companies. The banks’ profit margin is protected by the Chinese government, so they lack the motivation to provide loans to SMEs which carry more risks.

As one Chinese banking officer puts it, banks make the same amount of money when they provide a single loan of a million yuan or when they provide 10 loans that total a million yuan. But the 10 loans come with higher costs and greater risks. That has made factoring the obvious go-to option for SMEs to get additional cash to fund operational costs and business growth.

  1. Increasing labor costs. Inflation is rising steadily in China at 1.8%, but the food prices inflation is at 2.4%. This has forced many employees to choose only the businesses which can provide the adequate salaries they need. That gives SMEs an additional problem for its daily operations. These SMEs have higher cash flow requirements.
  2. Slower payments. A business survey conducted by Peking University and Alibaba found that 30% of Chinese businesses were affected by late customer payments in 2011. In 2010, this was just 6%. There’s no central credit history monitoring system in China, so commercial debtors can dictate the terms of how they pay—if they pay at all.

With factoring, this problem is solved for SMEs. In one version of factoring that’s popular in China, the factor is the one collecting the payments from their client’s customers. When customers pay late, that’s the factor’s problem, not yours.

The Chinese government is extending its efforts to persuade banks to provide more funding for SMEs, but whether these efforts will work remains to be seen. Right now, factoring in China is still the way to go for SMEs.