Purchase order financing allows importers to fulfill buyer orders without using any of their own capital, and it allows importers to avoid many of the risks associated with acquiring goods from overseas. When you use PO financing, you present a purchase order from a buyer to a financial institution. The financial institution will pay your supplier directly, and then they'll be paid in return from the buyer who's purchasing your imported goods. In return, the financial institution will take a fee out of your final payment for their services. None of your own funds are used during the process. To see why using PO financing makes sense for an importer, read on.
You Open Up Working Capital
One of the greatest challenges for a reseller is the time gap between when you pay your suppliers and when you're paid by your buyers. Suppliers require you to pay up-front before they'll even begin working on your order, and buyers often send you payment for your order long after you've delivered it. For an importer purchasing goods from overseas, the time gap is even worse due to the long transit times involved in shipping the items.
PO financing is the perfect solution to avoid this time gap entirely, which helps you retain working capital for paying other expenses like marketing or expanding your warehouse space. When you use PO financing, none of your own funds are used to pay your supplier — they're paid by the financial institution you're working with. You'll be in a better position to grow your business when your funds aren't tied up waiting for suppliers to deliver and buyers to pay you.
You Avoid Unsold Inventory
Another risk that resellers face is having inventory go unsold, particularly if you're dealing with perishable goods. When your business operates using primarily PO financing, there's no risk of unsold inventory — financing is based on a buyer sending you a purchase order.
Stocking up on imported goods and trying to find a buyer risks inventory wastage, but using PO financing reverses the entire business model. Your business searches for buyers first and then uses purchase order financing to fulfill their order. When operating this way, you'll entirely eliminate the chance of inventory going unsold.
You Mitigate the Risk of Supplier Non-Fulfillment
Working with overseas suppliers presents some additional challenges compared to working with domestic suppliers. Supply chains are more complex and you may not have much recourse if a supplier simply doesn't fill your order — your business may not have the resources available to navigate a foreign court system with a lawsuit. PO financing can solve this problem as well, since you're transferring the risk of non-fulfillment to the financial institution that's providing the loan. With financing, there's no need to put your own business' capital on the line when importing products, which reduces your business risks.
Overall, PO financing is the perfect fit for an import business due to its ability to eliminate many of the risks associated with importing goods from overseas suppliers. Long transit times are much less of an issue, and you'll also avoid having any inventory go unsold by switching to using PO financing as your main business model. If you think that purchase order financing would be a good fit for your business, contact a PO financing company and ask them about their experience working with import companies.