How Does Purchase Order Finance (AKA Import Finance) Work? (training video)
Usually used for when you have a large order placed by your customer that you cannot afford to get manufactured. You’ve used up all the money tied up in your invoices for working capital. Now you require even more more cash to take on those orders. SOmetimes this kind of finance is known as Import Finance.
Daniel makes the point that it’s very important that business owners understand that manufacturing for purchase order finance does not need to be done locally here in Australia but it can be done in the U.S, China or any other country. The key to this product is that the manufacturer is of excellent quality that you are dealing with.
Daniel explains the basics of how a transaction takes place:
- The start of the transaction begins when your customer provides you with a purchase order for some goods.
- You then take the purchase order and you hand it to AR Cash Flow
- AR Cash Flow then takes the purchase order and verifies it with your customer
- Once the purchase order is verified, a letter of credit is opened up with to the supplier (manufacturer) which can be local or overseas, AR Cash Flow then places the order for the goods.
- Once the goods have been manufactured or ready to be sent they are then shipped directly from the manufacturer to your customer
- Once your customer receives the goods they then pay AR Cash Flow either by COD terms (cash on delivery) or if they are not on COD terms and an invoice is raised, then AR Cash Flow can finance that invoice as well to repay the purchase order finance
- Once payment is received AR Cash Flow then pays you the profit left over.
What is the key to these transactions?
- You need to have a very good quality customer
- The purchase order needs to be real and can be verified
- Your manufacturer (supplier) needs to be of excellent quality
- The goods must be shipped directly to your customer from the manufacturer