Purchase order financing or production financing
Purchase order financing works for companies that have purchase orders from their customers but don’t have sufficient funds to produce or procure the goods or services being sold and thus seek financing usually from a factoring company to get said funds.
In purchase order financing a company usually has an ongoing relationship with their Customer or has sold the same goods in the past. The factoring company usually looks for previous trade experience between your company and your Customer.
In other cases if the goods are produce by a third party and dropped shipped directly to the final buyer, the factoring company will evaluate the reputation of the manufacturing party to make sure that the goods they are producing will be satisfactory to the end buyer. In this case, the factoring company will pay the goods to the manufacturer and once the final buyer pays for those goods under their terms, the factoring company will give to the Client its margin in the transaction.