Can PO Funding help you if you need supplies to build something?

One of the trickiest questions that a purchase order funding company gets comes from prospects that need supplies to build something. Let me give you an example, John is the owner of Awesome Chairs. John just got an order for 1000 chair from The Chair Super Store. The problem is, John cannot fulfill the order because he is running low in wood an nails.

Can John use his purchase order to get po funding, build the chairs and fulfill the order? Maybe, but probably not. There is a common misconception that this is a classic textbook example of po funding... so why won't purchase order funding work?

Simple. You won't find many (if any) factoring companies or purchase order financing companies that would be willing to assume the risk in this transaction.

Why? The risk is too high. What if John botches the order? That means that the factoring company now owns 1000 botched chairs.

There are some companies that will fund this transaction, but not many.

Remember, purchase order funding companies like to fund intermediaries. If John was BUYING CHAIRS from Supplier A to re-sell them to The Chair SuperStore, then things would be different.

The PO Funder could issue a LOC to the supplier, payable contingent on delivery of acceptable product. Acceptable product, would of course, be chairs that conforms to The Chair Super Store's requirements.