Can Purchase Order Financing Be Combined with Other Types of Funding?

In a recent post, I talked about combining purchase order financing with factoring from a cost perspective. Now, I'd like to broach the subject from a different perspective. Here are two scenarios:

1. Company A: They have a line of credit based on accounts receivable (similar to factoring). The line of credit has a UCC Lien that encumbers all assets, including receivables.

2. Company B: They have no financing whatsoever. Assets are unencumbered.

Assume that both companies are good candidates for purchase order financing. Could they both get it? Well, Company B could get it for sure. Company A's situation is a little bit trickier because they have their invoices/receivables encumbered by a UCC.

Think about it this way - the collateral for a purchase order financing transaction is the invoice that is generated when the goods are delivered. In Company A's situation, that invoice is already collateral for an existing loan, leaving the purchase order finance company (who paid for the goods) in a bad collateral position.

There is a solution to this problem though. The purchase order financing company and the bank that offers the line of credit could enter into an inter-creditor agreement, where the purchase order financing line would be taken out by the line of credit as soon as an invoice is generated. This allows both funding lines to co-exist while being reasonably collateralized. These can be tough to negotiate but can be done. On a tricky subject like this one, is best to consult a legal or financial advisor.

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Looking for information on business funding? Read the purchase order finance blog