Qualification Criteria For Purchase Order Financing

Qualifying for purchase order financing is easier than qualifying for most conventional business financing products, however, there are some qualification criteria that must be met. The purchase order financing company will need to perform some due diligence to ensure that the transaction is a good match for its capabilities. This blog post will help you understand what the purchase order financing company is looking for.

1. Does the transaction qualify?
Purchase order financing companies tend to get involved in transactions that have high gross margins. Usually, the minimum gross margin that they will consider is 20%. However, there is some flexibility to this. Additionally, the transaction will need to meet these criteria:

• It must be a straight finished product resale
• Your company must buy the finished product from a third party distributor or manufacturer
• The product must be delivered to the end client with little, if any, modifications
• The purchase order must be non-cancelable
• The transaction must not be a guaranteed sale

2. Do my customers qualify?

To qualify for purchase order funding your commercial or government customers must have good credit. This is critical because the whole transaction depends on their ability to pay for the order.

3. Does my company qualify?

Although purchase order finance companies look at your purchase order as their most important collateral it does not mean that that is the only thing they look at. They will also look at your company to make sure that it has the ability to fulfill the transaction, should it get funding. Most purchase order finance companies will request the following:

• Company financial statements - to ensure that the company at least has some capital
• Tax records - to ensure that your company's taxes are up to date
• Public records searches - to ensure that there are no hidden surprises

4. Does my supplier qualify?

To qualify for purchase order financing your supplier must be able to fulfill the product order. They must also be in good financial shape because the purchase order financing company will usually pay them through a letter of credit or at shipment. If a deposit is required, it will usually also be covered through a letter of credit.

5. Do the company owners qualify?

The purchase order finance company will also look at the background of the company owners. They will do the required records searches and review important findings such as liens,bankruptcies, tax problems, and legal problems. Basically, they are looking for any personal items that could negatively impact the company.

Conclusion

These are not all the requirements to qualify for purchase order funding because many times companies will ask for additional information based on specific transactions or situations. However, these points should give you a very good idea as to what to expect through the due diligence process.