Purchase Order Finance
This program is designed to finance clients who have purchase orders from creditworthy customers (debtors). When clients have a P.O. and insufficient cash to deliver the product or perform the service, Summar finances the operation by providing the necessary working capital to allow our client to perform on its P.O. Once the P.O. becomes an invoice, the transaction converts into Invoice Factoring.
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 produced by a third party and drop 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.
Summar services this operation on a case by case basis depending on the following criteria:
History of client
Creditworthiness of the client’s customer
Profit margin percentage of the operation
Example of a P.O. Financing transaction:
A client in the US lands a contract to supply an order for safety railing to be used in road construction in Panama. The company that is buying the safety railing is a large multinational corporation doing work for the government locally, and they need railing that is produced under DOT regulations in the US. The payment terms are 30 days after receipt. The order is large and the manufacturing company in the US does not give payment terms to our client. The client asks us for P.O. (Purchase Order) finance so we pay the US supplier and wait for payment collection from the company in Panama. In this example, our client has a 16% margin between the purchase price and the selling price, so once Summar collects the payment from the company in Panama, we will discount our investment (payment to the US supplier) plus our fees and give the remainder to the client. This way the client was able to secure a transaction using zero capital of his own.