Use Case – Purchase Order Funding
A reader recently asked for us to do a Use Case – Purchase Order Funding can be done for an International Transaction using a typical scenario to demonstrate how it fits together.
Use Case – Purchase Order Funding Players:
Location: Chattanooga TN USA Age of Company: 1.5 years Yearly Sales: 1.2 million USD |
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Broker Location: Marseille France Age of Company: 2 years Yearly Sales: 5.2 million USD |
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End Buyer Location: Antwerp Belgium Age of Company: 5 years Yearly Sales: 3.2 million USD |
Use Case – Purchase Order Funding Scenario:
To begin, Ryerson Machineworx is a company that manufactures machinery products for manufacturing plants. In other words, they are a machine shop to create machinery that other companies use to produce or manufacture parts.
They have been operating on investor funds since the company started. A company called Francois Intermédiaires from France has contacted them about purchasing $1 million USD worth of their goods. The France Company has a sales agreement to sell the goods to a company in Belgium for $1.3 million USD and wish to facilitate the sale and they are looking to procure the product from Ryerson.
Consequently, none of the companies have done business together previously but all have done similar business with other parties.
Terms of Sale:
End Buyer: Full payment 30 days after delivery and acceptance.
Manufacturer: Requires payment assurance upon order confirmation and full payment upon delivery and acceptance to customer.
Use Case – Purchase Order Funding Solution:
A Purchase Order Facility can be put together in order to accomplish the following:
Keep in Mind: Use Case – Purchase Order Funding
This is not the only way to structure the successful completion of the transaction, however is it a typical way to do it. There are several other ways to put together the transaction based on the various factors that come into play in such transactions.
The number one most important things, more so that creditworthy customers is that the facilitator, or in the given example Francois Intermédiaires, must be able to show an “Audit Trail” that they have successfully orchestrated similar transactions. If it cannot be demonstrated that the company organizing the transaction has not done similar transactions in the past, this will most likely negate the possibility of doing a Purchase Order transaction in the shown manner.
In conclusion, when an Audit Trail is not available, it may be possible to do the transaction with a liquid fund contribution by the facilitator so they will have “skin in the game”.
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