Purchase Order (PO) financing is a financial solution that offers short-term funding to companies, enabling them to pay suppliers in advance for confirmed purchase orders. This financing method helps businesses maintain their cash reserves and fulfill large orders without the worry of cash flow issues. It provides the flexibility to scale the financing amount according to the order size, with no long-term obligations, allowing companies to opt-out whenever their order volume decreases.
Who is eligible for PO Financing?
This financing option is ideal for expanding businesses seeking to manage large orders. It caters to companies that face challenges with working capital and experience fluctuating cash flows. Typically, businesses that benefit from PO financing include:
- Distributors
- Wholesalers/resellers
- Importers/exporters
How does it work?
When a business secures a substantial PO from a customer, it faces a gap in working capital since the supplier demands immediate payment, but the customer’s payment might take 60-90 days post-delivery. In this scenario, the financing entity verifies the purchase order and can advance up to 100% of its value to directly pay the supplier, bridging the working capital gap.
The cost associated with PO financing depends on the specific transaction and is influenced by the level of risk involved. Factors affecting the cost include the necessity of paying suppliers upfront, adherence to delivery schedules, and the waiting period for payment post-delivery, typically ranging from 60 to 90 days. The financing cost is calculated as a monthly percentage based on these risk factors.
How long does it take?
The process from application submission to funding typically spans about two weeks, with one week for underwriting and another to set up the funding and repayment terms. In some cases, funding can be expedited, occurring within 10 business days.
What is the approval process?
To apply for PO financing, businesses must initially submit:
- A fully completed and signed application form from K2 Capital.
- Recent financial statements, including accounts receivable aging and accounts payable.
- The purchase order and delivery contract with the end buyer.
Following the review and assessment of these documents, K2 Capital will provide the applicant with a term sheet and a list of closing steps.
