Universal Funding, an accounts receivables financing company, recently announced purchase order financing as an additional option for companies seeking commercial lending.
Purchase order financing is a short-term financing method used to cover the cost of manufacturing or purchasing goods that have been presold through a purchase order.
There are actually two kinds of purchase order financing: Funding Finished Goods and Funding Non-Finished Goods.
Funding Finished Goods
This type of PO financing refers to the sales of products that are never touched by a wholesaling company. An example of this would be a wholesaler who receives a large order from a department store. After receiving the purchase order, the wholesaler places the order with the manufacturer. Once filled, the order is shipped directly from the manufacturer to the department store, never touching the wholesaler.
Funding Non-Finished Goods
This type of PO financing refers to sale of a product where a company takes possession of the components and transforms them into the final product. This could apply to a manufacturing plant, which transforms raw materials into a product. It would also apply to a business that purchases containers of office supply furniture from China, assembles the pieces in the States before selling them to another company. Funding non-finished goods through PO financing is harder and more costly than funding finished goods, as there are inherently more risks that go into the equation.
Universal Funding is offering funding for both finished goods and non-finished goods.