cash Flow
is the ability to bid and accept larger which turns this scenario into a regular transaction before the order is complete.
orders and grow his business. Making factoring transaction. However, this For example, the contract or order could
this point during your conversation twist on traditional factoring will usually be disputed or it could be canceled for
or presentation can bring the prospect help you get your foot in the door as a many reasons, including an act of war
around to using factoring in conjunction cash flow consultant. With PO funding, or terrorism.
with PO funding. you are offering something “different.” On the positive side, although the
Business owners who are fixated on Purchase-order financing can also money to fund purchase orders is more
the term “a line of credit” can also be be used internationally and provides expensive, your client’s supplier is paid
swayed. Although there are differences businesses an alternative to wiring funds promptly. This gives your client the
between a line of credit and factoring, directly to a foreign supplier. Most ability to negotiate better payment terms.
the words a line of credit can be used to overseas suppliers want a down payment In the end, the additional cost of PO
jump-start discussion with a prospect. or deposit before they begin production. funding can be erased by the discount
For example, many business owners And during the production cycle, the the business gets for early order payment.
don’t understand that while they’re business has to deposit more money Also, because the raw materials are
waiting 30 to 60 days for their customers periodically until the final payment, delivered faster, your client will need
to pay invoices, they’re losing money. which is due upon delivery. This process less time to produce its product.
Essentially, they’ve issued a free line of can stretch the business owner finan- PO funding offers other intrinsic
credit to their customers. However, you cially. While he wants and needs advantages, as well. Typically, the small
may not want to point this fact out to the larger order, he also needs to business has to wait in line behind larger
the prospect, the bank, or the referral companies before its orders are
source; most of these people consider shipped. Because of the prompt
themselves very business savvy, and
many business
payments, however, your client
the idea that they would be extend- becomes a respected customer.
ing credit for free will not sit well
owners don’t
His phone calls are returned
with their egos.
understand that
promptly, his orders are taken
Instead, you can ask how much it’s seriously, and the business
costing to wait for their money. Then
while they’re waiting
relationship with the supplier
tell them that by combining the
PO funding with factoring, they can
get something similar to a line of
30-60
is elevated to a higher level.
From the consultant side, PO
d a y s
financing offers another income
credit without losing the time value opportunity. The advance on a
of their money. Doing so improves
for their customers
contract or purchase order is an
your chances of closing the deal.
Continuing to remind your
to pay invoices,
independent transaction. The
invoice — from the business to
prospects that they can grow their its customer, with payment due
businesses without restrictions using to the factor that advanced the
the tools you are offering is a good
they’re losing money.
funds — repays the advance on
incentive and may help persuade the purchase order. This generates
them to try what you’re offering. a commission for the consultant.
pay his regular bills and make In addition, when the customer pays
how purchase-order
payroll domestically. the invoice to the factor, a second
financing works
A factor can issue a letter of credit consultant commission results.
PO funding is the advance of money
to the international supplier as assurance
to a supplier on behalf of a business —
that funds are available and will be
everybody wins
your client — that needs supplies to
paid upon completion and delivery
Using PO funding as a marketing
complete an order from one of its
of the order. Once again, these advances
tool has a dual benefit: More deals can
customers. The advance can also be
are repaid by factoring the invoice that
be closed, and more commissions can
made to a subcontractor for work to
is generated when your client — the
be earned.
be completed on the business’s order.
small business — ships the end product
Considering the current upheavals in
A factor sends the money in the
to its customer.
the banking industry, this is an excellent
company’s name directly to the time to start developing relationships
subcontractor or supplier; the money The pluses and minuses and prospects. As a cash flow consul-
is not sent to the business itself. This type of funding carries a higher tant, you can offer purchase-order
The advance for PO funding is usually cost than factoring because the factor funding as a quick, simple solution
repaid by the end user of the product. takes on more risk. After all, the product for many small and medium-sized
For example, the funding source buys materials haven’t been delivered or the businesses — and boost your own income.
the invoice that the business sends to its work hasn’t been completed yet. And Anne Gordon can be reached at
customer when the product is shipped, much can go wrong to disrupt the
agord@swbell.net
46 I July 08 I Growing Wealth I
growingwealthmag.com
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