Purchase Order Funding

Purchase Order Funding

Purchase order financing is a short-term commercial finance option that provides capital to pay suppliers in advance, so you don’t have to deplete critical cash reserves.

Here is an example:

A business has a purchase order ready to fill, however cash on-hand is tight and the company is required to pay the supplier upfront. The Bank has only approved a small line of credit and is not willing to extend additional credit for this new order. Using Sterling’s P.O. Optimizer service, suppliers are paid directly via wire from Sterling. The vendor then fulfills the order and you convert the P.O. into a valid accounts receivable, which you are then able to factor and pay-off the P.O. advance.

Who uses it and why? Purchase order financing is designed for growing businesses with little access to working capital and/or poor cash flow. If your company finally landed that dream order, but there’s not access to the capital needed to make it happen – you should consider Sterling’s P.O. Optimizer service.

Top 5 Reasons Why Companies Choose Sterling’s P.O. Optimizer

  1. Down payment to vendor to produce the product
  2. Under-capitalized and in need of cash injection
  3. Take advantage of opportunities
  4. Need for flexible and customized financing options
  5. Unable to get traditional financing due to high growth, limited sales history or restructuring situations

Transaction Size

Purchase Order revolving lines of credit range from $25,000 to $500,000.

Criteria

Most companies qualifying for a Sterling Commercial Credit purchase order optimizer will be producers, distributors, wholesaler or reseller of manufactured products.

In most cases, annual sales range from $250,000 to $15 million per year. Key due diligence for purchase order optimizer programs rely heavily on gross profit margins and asset conversion timelines. The conversion from purchase order to valid and verified accounts receivable is critical to the approval of purchase order credit lines and require the following:

  1. High quality account debtors
  2. Cash lockbox receipts through Sterling
  3. Validation of factory purchase orders
  4. Low dilution of accounts receivable
  5. PO converts to accounts receivable in under 40-days
  6. Gross profit margins in excess of 20%
  7. Customer to match funds from Sterling PO
  8. Personal guaranty of ownership group
  9. Satisfactory tri-party agreement with Customer / Factory / Sterling
  10. First secured position in all assets of borrower