At Premier Trade Solutions, being a dependable and honest trade finance company is important. Let us explain that purchase order finance is a form of trade finance that begins with a signed, confirmed purchase order, or “PO.” PO funding is provided for the purpose of fulfilling the purchase order. It allows companies to take advantage of sales opportunities and growth which they might not be able to fund through traditional bank financing without having to dilute current ownership.
There are three parties to a purchase order financing relationship:
Is the entity seeking to obtain PO financing/Trade Finance. In a traditional borrowing/lending relationship the Client would be seen as the “borrower.” In a PO relationship, the Client assigns the future payment on the PO to the entity providing the cash. That future payment will be evidenced by an Invoice when the PO is complete.
Is the entity willing to advance money to the Client so the Client can complete the PO. In a traditional borrowing/lending relationship, this is the “lender.” In the PO relationship this entity will receive payment based on the Invoice created when the PO is finished.
Is the entity buying the product or service from the Client and which will be paying the Invoice to the PO Financer. In a traditional borrowing/lending relationship this party would not exist except as a customer of the client.
The PO Financer or Trade Financer, after confirming the PO with the Debtor, will generally advance up to 60% of the value of the Invoice which will result from the delivery of the product or service to the Debtor. The Debtor agrees that when presented with the Invoice, they will pay the PO Financer directly. Financing can be used to purchase a product internationally or domestically, produce a product or to provide a service. Financing may come in the form of Letters of Credit, (L/C), payment on presentation of documents and/or cash for various expenses.
The PO Financer will also provide credit, accounting and collection services to the Client. They can assist the Client in negotiations with vendors often resulting in better terms for the Client. Foreign risk is reduced through the use of L/C’s. Equity and capital are preserved for other uses by utilizing the PO to essentially finance itself.
Let Premier Trade Solutions be your trade financing company and help your achieve your business goals.