Credit Enhancements as a Substitute for Purchase Order Financing

Recently I have been getting a number of call from companies that are looking for purchase order financing. After a short conversation, we invariably find that we can usually help this client by combining conventional invoice factoring with a credit enhancement.

Lets first look at the problem they are trying to solve. Most of this prospects have suppliers that are unwilling to extend them additional trade credit. If their suppliers were willing to extend their already existing credit they would be fine.

Well, this can be done using factoring and including an agreement where the factoring company direct advances to the supplier (to satisfy moneys owed) first, and then send the reminder to the client. Usually, this does the trick.

The advantages:

1. It helps you build your commercial credit
2. It's usually cheaper than purchase order funding
3. It's less complicated than po funding

Now, not every factoring company offers this. Also, I have over simplified a few points for brevity. But if you are looking for purchase order financing, you'd be wise to compare it against conventional credit enhancements.



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Looking for information on purchase order financing? Read the purchase order finance blog