How to Sell More Confidently and Win Larger Orders with Purchase Order Financing 10/15/2021
There is nothing sweeter than the moment you realize that you have a winning product. Buyers answer your calls, customers leave great reviews, and now is your time to capitalize on all of that hard work launching the next amazing brand into some of the world’s largest retailers.
But wait, there is work to do first. Working on massive orders requires a different type of thinking. It might require updates to production processes, scaling your logistics team, updating your marketing, and sourcing the MONEY to pull it all together. Sourcing the service providers to help build up an infrastructure in support of a fast-growing business can be plug and play. Today’s technology and the all-inclusive platforms for CPG operations management make that possible. Funding, however, tends to require a more bespoke fit to make sure you have exactly what you need in order to build a successful business.
Purchase Order Financing is a tool that CPG companies have been using for decades to finance the growth of their brands into customers like Walmart, Home Depot, and Kohls. It provides the ability to leverage purchase orders in order to finance 100% of your cost of goods. With the right PO Funding partner, it is now possible to deliver on time every time regardless of the size of your orders.
How does PO Funding Work?
In it’s simplest definition, Purchase Order Financing is where a financial firm will finance the production or acquisition of products for resale to credit worthy buyers. After receiving a non-cancellable purchase order from a customer, a lender will arrange for payment to be made directly to the supplier or manufacturer of the goods.
After the delivery of goods, the customer will issue payment (most likely direct to the PO Funding company) based on the negotiated terms. The calculation of how much funding will be provided is typically somewhere between 75% and 85% of the resulting invoice amount from when the goods will be delivered to the customer(s).
Why is PO Funding Important?
With so many lending formats available today including accounts receivable lines of credit, term loans, cash advances, and asset-based loans, it’s important to find the specific program that suits the needs of your company. A high growth company that is expecting large purchase orders from customers has a specific cash requirement for making large purchases. Unfortunately, most lending programs are not suitable to fill that need.
Many lenders are typically focused on past performance and historical data. Purchase Order Financing is structured in a way to assist with future deliveries. It allows brands to successfully fill large purchase orders without stressing out the cashflow that’s needed to run the rest of the business.
More than anything else, it levels the playing field just a little bit for younger businesses. Now more than ever it’s possible to 10x revenues or more in a short period of time once a few major retailers want your products on the shelf.
This transactional type of financing allows for companies of all sizes to source capital as needed to take on these large opportunities. Walmart issues a $15,000,000 order for holiday season? No problem. Target wants to roll out your product in all doors? Bring. It. On. Costco? Sure, we can handle that size of an order!
Who Can Use PO Funding?
PO Funding is a tool that can be used by most types of companies. As long as there is a non-cancellable purchase order from a credit worthy customer and a reliable source of product, you can use PO Funding to produce those goods. Of course, there are some technical nuances to note. Candidates of this type of financing should not having any current UCC filings or competing liens on the inventory to be purchased or the resulting accounts receivable.
Often times companies will look towards PO Funding in order to supplement a current financing program. This could be the case if there is already a factor or asset-based lender in place. The PO Funding company will work alongside them to provide additional capital as needed to help a brand achieve it’s goals.
How is PO Funding Set Up?
There is really only one correct way for PO Funding to take place:
1. Client gets an order
2. Lender finances the acquisition or production directly with the supplier or manufacturer
3. Lender is paid back when customer pays their invoice
Myth Busting Some PO Funding Information
Running a business is hard enough in today’s market. Running a business with misinformation makes it even tougher! Here are a few common misunderstandings about PO Funding.
1. It’s super expensive – Rates range from 2-4% of a markup on your cost of goods sold. Since this is related directly to your transaction, managing these costs is simple and your sales prices can reflect the additional COGS from financing.
2. PO Funding is only accessible to well established businesses – NOPE! PO Funding is a great resource for young startups and existing businesses. Since it is a transactionally focused type of lending, PO Funding companies aren’t so concerned with your P&L, balance sheet, or time in business.
3. My customers won’t buy from me if they know I’m using a funding company – NOPE! In fact, they will feel confident that you can fill larger orders because you are backed by a reputable financial firm.
What Are the Benefits of Working with STAR Funding?
1. Over 20 years of purchase order finance and factoring expertise to help guide and protect our clients.
2. Secure up to $25,000,000 in funding so you no longer have to worry about filling large orders. You can now sell with confidence knowing you have our support.
3. Short term transaction focused financing allows you to manage cashflow with the lowest financing costs possible.
4. No past sales requirements, startups are welcome!
ECRM and RangeMe are great platforms for exposure into many of the largest customers a brand can ask for. Hopefully it leads to successful relationships that result in receiving large orders from major retailers and other buyers. Once those purchase orders start flowing, purchase order financing can help you bridge that financial gap to get goods produced and delivered right when you need them. If you are interested in getting started today, please visit starfunding.com to apply.
You can find Star Funding, Inc. at our upcoming Global Market: Fall Experience. If you are participating and would like to learn more, you can request a meeting with them today.
About Star Funding, Inc.
Star Funding, Inc. has been providing purchase order finance and factoring services to our clients for over 20 years. Founded by apparel entrepreneurs, Star Funding understands the challenges you face in today’s markets. To date our funding has provided over a billion dollars in global financial support to help our clients move more product through the shelves of major retailers. Startups and existing companies receive unmatched service and the best pricing in the market with the ultimate cashflow support provided by Star Funding.
Editor's note: This article is sponsored content