I had a prospect who recently called me to talk about financing his business. IN principle, the transaction looked great. Excellent suppliers. Great customers. Your classic textbook purchase order financing transaction. There was just one problem. The transaction had to be completed in 4 days. Regretfully, I had to decline it. Declining it was not easy because the transaction was very big and would have provided us with some hefty profit.
Why did I decline it? Well, for a couple reasons but here is one:
Although the po financing can be obtained very quickly, we still have to go through the process of reviewing an application, reviewing financials and executing a contract. That process can take up to 2 weeks. Now, in the world of business financing - that is quick. Anyone who has tried to obtain funding from an institution knows the process can take months. Expecting to close a multi-million dollar transaction in days is just not realistic.... even with the flxibility of po funding.
What I find surprising is that I see this very often - more often than I'd like to admit. In my opinion, it points to lack of planning. Yep - sounds harsh. But think about it this way - if you were the CEO of a company - would you engage in a transaction that you can't do alone without securing your financing first? In my opinion, that is very risky. You'll be better served making sure that you can cover the transaction before committing to it.
By the way, in the factoring world, thing are a little bit different. I have seen factoring transactions close in 5 days. But even then - that is cutting it close. You are better off planning your financing needs ahead of time.
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Looking for information on purchase order financing? Read the purchase order finance blog
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