Turnaround Situations

Given the current state of the economy (although it's improving!), I get many calls from businesses that need purchase order financing to fund their turnaround. Is po financing the right solution for a turnaround? It can be, but you should know that it will not be as flexible as factoring. Two things to bear in mind:

1. Most po funders can work with companies that are showing losses, if those losses are tenporary and if there is a solid plan in place to turn around the company.

2. Most po funders cannot work with companies that have negative equity. Basically, when liabilities are greater than assets.

This can sometimes be a bitter pill to swallow for business owners, especially in these hard times. But unfortunately, the risks associated with negative equity are too great. Also, many financing companies (who themselves get financing elsewhere) may have restrictive covenants that prevent them from funding companies with negative equity. So remember that their hands may be tied as well.

So, po financing can be useful in turnaround scenarios, but not but it's not the right business financing solution for all cases.

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