Learn How A Successful Purchase Order Finance Transaction Works With A High End Fashion Client
If you’re unfamiliar with Trade Finance and how it works, then this video is for you!
In this video you will learn exactly how a well executed Purchase Order Finance transaction is conducted from start to finish.
Transcript below.
Hi, everybody. I’m Daniel from AR Cash Flow, and today we’re going to talk
about purchase order finance. We’re going to have a little look at exactly
how a successful purchase order finance transaction works, and to do this,
we’re going to use an example of one of our actual clients.
So our client is in the shoe industry. He develops or works on development
projects for high-end fashion retailers in Australia. The problem he has
is, once he develops one of these shoes, he then gets a purchase order from
the customer and he has to then go and get these products made. And the
problem is that this customer doesn’t pay him for those products until 30
days after the goods are delivered.
So that’s when he comes to us. What we do is, he gives us a copy of the
purchase order from the customer. We verify that the purchase order is
correct with the customer. Once we’re happy with it and we’re happy with
these trading terms, we take that purchase order as collateral or a form of
collateral. We then go to our bank, which is usually Westpac in this
situation. We issue a letter of credit, and we issue that letter of credit
to their manufacturer overseas and that manufacturer can cash that letter
of credit as soon as the goods are manufactured.
So once he cashes that letter of credit, we ensure that the goods go direct
from the manufacturer all the way through to the customer. Then, once
they’re delivered to the customer, the customer then pays us according to
their normal trading terms. As soon as they pay us, we give what’s called a
rebate or the profit, and we spit that out to the client.
And there you have it, people. That’s how purchase order finance works.
Thanks for watching.
For more information on Trade Finance, call the office on 1300 651 243 to book in an appointment with a Product Specialist.
