What Wholesalers Financing Advantages Are There For Business Owners?
Wholesalers are vulnerable to cash flow dilemmas, in which they win large business orders that they discover they can’t afford to fulfill. A financial niche has grown up around that recurring problem. Quick-moving lenders extend enough credit to save the transaction – and the wholesaler’s good reputation!
Purchase order (PO) financing is sometimes confused with invoice factoring. Factoring is cheaper, but it only shortens the Accounts Receivable cycle; it doesn’t lend the funds needed for the wholesaler to provide the product in the first place. That is the role of PO financing.
Direct Lenders for Wholesale
Under PO financing, the lender issues a letter of credit called Cash Against Documents (CAD) based on the customer’s commitment to purchase, rather than the invoice. The cost of your financing is based on the lender’s risk. For example, a CAD that is FOB China will cost more than FOB California.
The lender assesses risk of product rejection by your customer, and the risk that your own supplier might miss deadlines, or fail to meet your quality and quantity requirements. Under PO financing, you are loaned the transactional funds before your client approves and accepts the delivered product. This is a riskier proposition for your lender than invoice factoring, thus the higher rate.
Although PO financing rates are higher than invoice factoring rates due to greater risks, they are applied to smaller total amounts, because the PO lender only provides enough cash to pay your supplier, minus whatever deposit you have placed with your vendor, not the larger invoice amount that your customer will owe you.
Stressed-out wholesalers, hamstrung by cash flow anxieties, often report a sense of emancipation after purchase order lenders relieve them of that part of the job.
You make more money when you can concentrate on what you’re good at. By establishing a working relationship with a lender who understands your transactional financing needs, you can turn your deal over quickly and move on to the next one instead of agonizing over cash flow obstacles. That’s the genius of PO financing. Call us today to learn more and get pre-approved for your next wholesale purchase order.