It’s time. We’re talking about purchase order finance in Canada, how P O finance works, and how financing inventory and contracts under those purchase orders really works in Canada. And yes, as we said, it’s time… to get creative with your financing challenges, and we’ll demonstrate how. And as a starter, being second never really counts, so Canadian business needs to be aware that your competitors are utilizing creative financing and inventory options for growth, sales, and profits, so why shouldn’t your firm?
Where the banks say, no is where purchase order financing begins!, The reason purchase order financing is rising in popularity generally stems from the fact that traditional financing via Canadian banks for inventory and purchase orders is exceptionally, in our opinion, difficult to finance. Canadian business owners and financial managers know that you can have all the new orders and contracts in the world. Still, if you can’t finance them properly, you’re generally fighting a losing battle to your competitors.
We need to clarify to clients that P O finance is a general concept that might, in fact, include the financing of the order or contract, the inventory that might be required to fulfill the contract, and the receivable generated out of that sale. So it’s clearly an all-encompassing strategy. The additional beauty of P O finance is that it gets creative, unlike many traditional types of financing that are routine and formulaic.
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It’s all about sitting down with your P O financing partner and discussing how unique your particular needs are. Typically when we sit down with clients, this type of financing revolves around the supplier’s requirements, as well as your firm’s customer, and how both of these requirements can be met with timelines and financial guidelines that make sense for all parties. The key elements of a successful P O finance transaction are a solid noncancelable order, a qualified customer from a credit worth perspective, and specific identification around who pays who and when. It’s as simple as that.
So how does all this work, asks our clients. Let’s keep it simple so we can clearly demonstrate the power of this type of financing. Your firm receives an order. The P O financing firm pays your supplier via a cash or letter of credit – with your firm then receiving the goods and fulfilling the order and contract. The P O finance firm takes title to the rights in the purchase order, the inventory they have purchased on your behalf, and the receivable generated out of the sale. It’s as simple as that. When your customer pays per the terms of your contract with them, the transaction is closed, and the purchase order finance firm is paid in full, less their financing charge, which is typically in the 2.5-3% per month range in Canada.
In certain cases financing inventory can be arranged purely on a separate basis, but as we have noted, the total sale cycle often relies on the order, the inventory, and the receivable being collateralized to make this financing work. Speak to a credible, trusted, and experienced Canadian business financing advisor about how this type of financing can benefit your firm. Stan Prokop – founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com. Originating business financing for Canadian companies, specializing in working capital, cash flow, asset-based financing. In business 6 years – has completed more than 50 Million $$ of financing for Canadian corporations.