To have a successful po financing transaction you need four ingredients that need to work in concert with each other:
- An order that can be financed
- A customer that is credit worthy
- A reliable vendor
- High enough profit margins to support purchase order financing costs
As you can see, having the right vendor for your business is critical to the success of the transaction (for obvious reasons). However, many start up businesses ignore this key requirement. Many times, the prospective client will find their vendor on the Internet and do only a minimal amount of due diligence. Very often willing to trust a key business transaction on the reliability of someone they know very little about. They are often surprised when they find out that we do perform detailed due diligence.... any many are even more surprised when we inform them of critical deficiencies that we find of their selected vendor.
When we review a vendor we will try and determine if they:
- Have a good track record of product delivery
- Have a good financial record
- Have any legal or tax problems
You should not leave it up to your purchase order financing company to do this research for you though. Because if they find issues with your selected vendor they will start questioning the reliability the rest of the transaction, especially if the supplier had some flagrant problems. More often than not, the funding company will shy away from the transaction(or the client all together!)
At the very least, companies should consider doing the following due diligence:
- Get a detailed business credit report (i.e. Dunn & Bradstreet)
- Do a public records search to look for legal problems
- As for references
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Looking for factoring or purchase order financing? Consider working with us!
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