Purchase Order Financing Versus Supply Chain Funding

Purchase Order Financing Versus Supply Chain Funding

Purchase Order Financing

Supply Chain Funding has been steadily growing in popularity with our clients. Supply Chain Finance programs provide the business owner with capital to cover the cost of goods and make supplier payments.

How does it work?

Finance companies offering this form of financing will look at the business owner’s equity in the business, profitability and growth projections to name a few areas of focus. The credit analysis is slightly different depending on the Supply Chain company you are speaking with. Some set the line amount at a percent of the equity in the business (i.e. 25% of the equity in the beginning raising to 50% over time), and others will base their credit limit decisions on the amount of insurance they can take out on the business, while some have a more subjective approach based on their review of the overall financial picture of the company.

How is Supply Chain Finance different than Purchase Order Financing?

When utilizing Purchase Order Financing, the business owner needs to provide a copy of the purchase order to the lender. The PO copy is the basis for the loan amount being requested and the lender’s collateral. PO finance companies are repaid at the time of delivery to the customer by the company’s factor or asset based loan provider (unless they are managing the total relationship). Purchase order financing is a good source of capital when looking to cover the cost of a specific order of finished goods.

Supply Chain Finance works a little differently. Under this arrangement, the lender will pay the company’s suppliers and then gives the company 30 to 120 days to pay them back through the normal course of business. This type of finance does not need to be specific to any one purchase order for the company. The lender becomes another vendor for the company on their account payable aging. This is a great alternative when the company needs to build inventory for their season or is an online or brick and mortar retailer selling directly to the consumer (no accounts receivable).

Which one is right for your business?

It depends on whether you have specific purchase orders to finance or if you need more of a general line of credit to pay suppliers. Both are great ways to enhance liquidity and each offer the business owner the ability to act with the confidence of a cash buyer. In fact, a good portion of the finance cost can be offset by taking discounts from suppliers for early payment. Utilizing these options are a great way to leverage your buying power and your company’s growth.

About Huntington Coast Capital.

Huntington Coast Capital secures funding for companies in a broad base of industries. Our clients come to us to find a more flexible lending partner to meet their growth needs. Many are declined by the bank and are in need of a more creative and entrepreneurial funding solution.

We consult on a wide range of funding options for business owners throughout the United States in the following areas:

  • Supply chain financing 
  • Equipment loans and lease programs (learn more about our equipment loan platform offered through our subsidiary)
  • Lines of credit for working capital needs
  • Term loans for marketing, hiring staff and general expansion needs
  • Factoring services for accounts receivable financing that also provides for back office credit and collection functions
  • Purchase order financing
  • Asset based loans
  • Business acquisition financing
  • Inventory financing
  • Private commercial real estate bridge loans
  • SBA loans for business and real estate needs

Whether you are a startup or established, in need of $100,000 or $10,000,000 we have the capital partners to meet your needs. Contact us to see how we can assist in taking your business to the next level. To your success!