Purchase Order Financing - Easy Money
According to Dictionary.com the word "easy" has 17 definitions. The most important definitions are:
"1. Not hard or difficult; 6. Not burdensome or oppressive; 7. Not difficult to influence or overcome; 11. Not tight or constricting; 14. In commerce it means not difficult to obtain." As used in this article,"easy money is meant to convey the notion that, despite these difficult times in 2008 where cash is scarce and hard to find, in certain circumstances , businesses that sells products to other companies can easily obtain money to grow exponentially.
On this planet, humans have not invented money for hundreds of years. As civilizations and nation states were developed, humans learned barter and trade items they needed. Money was invented to help solve the problem of bartering. It was basically a timing issue between, for instance, farmers who had a crop that they could trade in for the items they needed when they needed it. The development and acceptance of silver and gold coins helped in overcoming the timing issue. Farmers could sell their crops in exchange for gold, and then trade it whenever needed, to purchase other things they required.
Paper money was invented for many reasons including the most important of which is the inconvenience of carrying a large amount of gold or silver. Paper money is more convenient to hide. Until the early 1900's In the United States paper money could be exchanged for gold. In the Great Depression, President Roosevelt in 1933 passed laws outlawing the ownership of more that 100 dollars worth of gold held by individuals. By the turn of the century in the 20th century, the U.S. government discovered easy money. Not shackled by the requirement for physical gold reserves the government printing presses churned out as much money as they needed; and the politicians invented schemes such as the sale of bonds issued by the government as well as loans from the government of different kinds, and controlling the amount of money available through 12 regions of Federal Reserve Banks to manage the nation's economy and money supply. get purchase order finance
The easy money that our government is able to offer in fact has caused every American to pay a high price. Since the world economy is realizing our currency is worth less and we pay more for imports such as gas, clothes and food. In the event that we travel abroad, in Europe for example we will find that it takes around one and one-half U.S. dollars to purchase a single Euro currency, which is the currency of Europe. In reality, European hotels restaurant, food items, and services cost 50 percent more for Americans due to the weakening in the dollar. Ironically, U.S. musicians make more money in Europe than they would in America since it is less expensive in order to compensate them "in dollars". In spite of the economic conditions many U.S. businesses are innovative and innovative and ready to grow at a very fast pace. Purchase Order Financing can be an affordable solution to fast growth needs.
Why does it work? Purchase order financing is a solution to the issue of timing to make payments to a company for the goods prior to when the buyer makes payment to the seller for the product . It's similar to how gold and paper money resolved the issue of barter timing mismatch. One real world example is the one of a business that has developed popular products for cats and dogs. A majority of their clients were small-scale stores. Then one day they received a massive order from a big-box retailer that could nearly triple their revenue on an annual basis. The company was short of the cash to fulfill the purchase. Purchase order financing was the answer for their cash shortage to cover the cost of the manufacturing of the goods and also deliver the products to the big box buyer.
How does it work? A credit letter is issued to the manufacturer to guarantee payment. The costs of goods are transferred to the company as soon as the items are shipped, in the instance above, to the large box retailer. A credit arrangement with an account receivable can be used to fund the purchase order as well as the letter of credit side that is involved in the sale. If the buyer is able to pay the accounts receivable, the loaner, usually a finance firm (or bank affiliate) gets paid pursuant to the contract and the proceeds are refunded to the seller. purchase order finance south africa
Why is it easy money? Because the credit of the seller is not the sole factor to get the financing. Instead, the buyers credit is utilized to support the financing. However, good character and experience are important to lenders. During the due diligence process lenders have to verify that no prior UCC-1 liens exist with respect to the company. If there are serious credit issues such as bankruptcy, the approval of a bankruptcy court for the debtor in possession will be necessary. This kind of situation would generally not be endorsed by an Bank but the loan is still fairly easy to obtain considering the circumstances. And it is available if the capital is virtually unlimited. If the company grows, so to will the finance facility increase in size as long as the purchase orders are from reliable, creditworthy businesses.
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