Factors that Affect Apparel PO Finance Approval

You have a huge order from a customer and this could very well help pay your operational costs for an entire year. But the problem is, you don’t have the money to pay your supplier. Where will you get the money?

Factors that Affect Apparel PO Finance Approval
Factors that Affect Apparel PO Finance Approval

While you can turn to your bank, the loan approval you need is very iffy at best, and it takes too long. This is where the apparel PO finance opportunity comes in. You just use the purchase order from your customer to get the money you need to pay the supplier. Your chances of getting approval for the finance is much higher compared to banks, and it will all depend on the following factors:

  1. How profitable is this business opportunity? This is perhaps the most important thing that your lender will consider. After all, in general your lender will take a cut from your profits, so there has to be some actual profit involved. And because you’ll be sharing this profit with your lender, the profit has to be substantial.

So how much profit will you need? That depends on your lender, but some may require you to profit at least 30% from your investment. This means that if you invest $100,000 for the deal, you’re going to get back $130,000 from the customer. Others may require only a 20% profit, however.

  1. How good are you as a manager? Say you’re a distributor, and you’re the go-between of the manufacturer who makes the goods and the retailer customer who needs the goods for their own store. Can you help make sure that everything goes smoothly? One way to prove this is if you’ve done similar jobs in the past and the results were positive.

In other words, your credit rating may not be in question (that’s rather irrelevant in apparel PO finance), but your expertise will certainly be one of the considerations your lender will take into account.

  1. How reliable is your supplier? Everything starts with your supplier. Do they have the capability to produce what you and your customer needs? If you need a thousand dresses made in a month, then that means your supplier should be able to produce that number in that time. Retailer customers may also have some conditions set regarding the quality of the merchandise, and your supplier should be able to meet those conditions too.
  2. How will your customer pay? In the apparel and garment industry, payment can come anywhere from 30 to 90 days. That’s of course if they come at all. The lender will check not your credit history but your customer’s credit history, to see if they have any nasty habit of not paying or paying very late. Some customers, in fact, can even take an entire year to pay for what they ordered from you.

Sometimes, your apparel PO finance company may insist that a factoring service will have to be brought in so that your lender will be paid quickly once you deliver the goods. Factoring involves getting your money now instead of getting it when the customer pays in full, and this can hurt your profits.

But all in all, if the lender refuses to pony up the money so that you can fulfill the order, then this may be a good thing for you. Now you know that the customer is unreliable, and at least you’ve been warned.

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com