Timing is Everything in Purchase order Financing

One of the fun aspects of working in purchase order financing is that we deal with entrepreneurs on a daily basis. Many of our clients are startups that have been around for less than a year. It's not uncommon for us to be dealing with a business owner that is juggling one thousand things at the same time. Unfortunately, we have also seen many owners drop a ball or two or three.

One of the biggest mistakes I see if when an owner postpones applying for financing early in the game. Many postpone it because they have other "more important" things to handle - such as working with suppliers and clients to get a large order ready. There is a problem with that theory - our prospects come to us because they CAN'T deliver the order without our funding. Wouldn't it be logical that they spend some time ensuring they will have funding before committing to a client?

I see this every day. We get contacted by prospects early but then, they delay their application until the absolute last moment - say three weeks before a supplier needs to be paid. This gives us very little leeway to correct any problems that could crop up. If something goes wrong - the transaction usually falls through because the company is out of time.

The better approach is to begin financing discussions early - so that there is ample time to handle any potential problems. Here is a list of some common "problems" that derail purchase order financing transactions:

1. Suppliers won't accept our payment terms (e.g. letter of credit)
2. Supplier has a bad commercial credit record or bad delivery record
3. Clients are buying the goods as a guaranteed sale or a consignment sale
4. Client has bad commercial credit

Usually, items 1 through 3 can be addressed by re-negotiating a contract with a supplier or client, provided you have enough time to do it and provided your client/supplier is flexible. However, if you wait until the last minute and try to negotiate this AFTER the contracts have been signed and you are getting ready to start the transaction your chances of success will be minimal.

Being an entrepreneur is not easy - many times it means that you have to handle have to multitask and do many things - of equal importance - at the same time.

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