Purchase Order Financing Tips and Secrets for Canadian Firms Seeking Trade Finance

Your worst business nightmare just occurred. You got the order/contract! Now what?!

Purchase order financing is a great tool for firms that have unusual purchase order and contract sales financing needs but are potentially unable to access traditional financing via banks or their own capital resources within their firm. How does trade finance P O financing work, does your firm qualify, what are the costs, and how does it work? Great questions, now let’s explore some answers!

Typically Canadian firms looking for this type of financing are distributors, manufacturers, or perhaps wholesalers. A variety of industries in Canada have access to this type of financing, but those certainly tend to be the typical firms needing assistance.

Your need for purchase order financing arises out of what we call the classic working capital gap. What do we mean by that? It’s a case of your suppliers requiring payment either up front or within 30 days, with your firm unable to generate those funds for payment and therefore unable to fill large purchase order and contracts in your favor. Your supplier is asking your for payment in advance or 30 days, and you wont receive payment for at least 60-90 days, perhaps more depending on your build cycle, etc.

Naturally you don’t want to turn down orders or lose competitive market position.

The obvious solution for low cost large amounts of funds are Canadian chartered banks, but our observation is that many firms simply cant satisfy the banks requirements for this type of financing to occur. If your firm is growing, profitable, has a clean balance sheet and strong historical cash flows and history you of course have a solid chance of meeting bank requirements, however that typically is not the case, certainly in the amount of clients we talk to who are looking for alternatives to their growth challenge!

When you access p o financing you can have comfort that your suppliers will be paid, and at the same time you generally have access to all the funds you need. Typical purchase order financing applications take anywhere from 2-4 weeks to complete and involve basic financial due diligence on your firms ability to fulfill the order, who your customer is (they must be credit worthy), and your proper supplier sources must be identified and vetted. It’s as simple as that.

So what are the basic pre requisites for a solid P.O. Financing deal? Naturally your company must be in possession of a contract or order that is not cancelable by your client. The P O finance firm arranges to pay your suppliers directly, that alleviates all you cash flow and working capital concerns. The transaction is completed when you ship the goods and your receivables are generated on the sale. It is at this time the purchase order finance firm expects to be paid, and this is traditionally handled by your firms monetizing of its receivable via a bank or factoring facility. Factoring facilities are great partners to the P O financing strategy, because use of them guarantees payment to your P O firm.

Let’s cover off a couple tips and secrets around the cost of purchase order financing – It generally is in the 2-3% per month range in Canada, and that means you have to have solid gross profit margins in order to be able to sustain the finance charges. But let’s be honest, let’s say your firm has been doing 750k of revenue for the last couple years and you finally get the large order from a major customer for 1 Million dollars. Wouldn’t you give up 2-3 % of your profit margin in order to make one sale which is the equivalent of your entire year’s business? We think you should positively consider that! Clearly the higher cost of this type of financing covers off the complexity and risk that the P O finance firm takes in paying for goods, waiting to get paid, and having the belief that your firm will fulfill the contract order.

It has been our observation with certain clients that your successful completion of a purchase order finance deal typically significantly enhances your relationship with your major suppliers and of course customers, that’s a secret benefit that is intangible but invaluable at the same time.

Is P O financing for everyone. Maybe not. Could it be possibly the solution to major working capital needs if your business is growing and can’t be financed traditionally – we certainly think so? Speak to a trusted, credible and experienced purchase order finance expert to explore your options.

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Valuing Money – It’s the Subtleties That Bring Us Power and More Money

“Money is the root of all evil.”

“The rich are snobs.”

“Gotta work hard for your money.”

The above phrases, and many more which you probably know, are common in many people’s lives. You may have some from your childhood which still persist in your life today. Compare the above phrases with the ones below.

“Money is beautiful.”

“Rich people are generous.”

“Money flows to us when we give.”

Notice any distinctions? The way we talk and think about money speaks directly to the way we value money. In this article I will outline three key practices that, when practiced, will have a positive impact on the amount of money you make and keep-regardless of how much money you currently enjoy.

Money is a medium of exchange. It is energy that flows between a shop owner and their customers. When you purchase something, say a hamburger, you are deciding that the hamburger is worth more than your money. This is an important distinction. Anytime you spend your money, you value the item or experience to be worth more than the amount of money you are spending.

As humans, we used to exchange an item for an item-a horse for a pig. Then we began valuing shells and metals and we exchanged these for other items. Once states and nations came into existence, they began to control currencies and we created bills and coins. This is what we have today along with our digital forms of transactions. Each time we modify our currencies, we adopt more efficient means of exchange. Currencies represent the actual things we exchange. Money represents the actual value in energy that we trade.

In other words, the dollar bill could be worth a dollar today and in ten years, comparatively, it could be worth $.075 when compared to the original buck. This is inflation at work. Currencies may stay the same for decades and even centuries (given in to a few security changes overtime). However, money itself fluctuates on a minute by minute time frame. Money is energy and it is in constant flow.

Knowing these distinctions we can explore three life changing and pocket book altering tips.

How we think and talk about money shows us how we value money.

When you do not value something, what happens to it? It tends to disappear. Think about relationships you have with people in your life. The ones you value you probably speak to daily or weekly in order to keep them close and healthy. Plants, when not valued, will wilt and pass away. This is similar to money.

If we go around thinking money is the root of all evil, we would associate it with being evil and our actions would ensure we got rid of it when we had a large sum of money fall into our laps. We would not want to be evil. This works on a subtle level.

Here is another version that played out in my life. I recently had an opportunity to leave my job. In other words, I had conflict and one option was to resign. I already did this a few years ago, so it was too familiar. As I explored this, I had a thought come into my mind, and perhaps this sounds familiar. In evaluating this decision I asked, “What if money were not a factor? How would I proceed then?”

This is subtle. This question represents a tricky, conditioned response. What if I asked this question instead: “If my kids were dead, how would I proceed with this decision?” I am being blunt for a reason. The questions are insane.

When asking this about money and taking money off the table, I diminish the value I have for money. If I diminish its value, then I am sending the message that it is not important. As soon as I was able to catch that and say that money is important, in fact, I am willing to do whatever it takes to have the money flow into my life, a new message is sent. The universe responds.

Explore the subtleties in your language to learn how you are resisting more money coming into your life.

How we spend our money shows us how we value ourselves.

When you get paid, how do you spend your money? Have you noticed the flow from your pocket out yet?

Very successful people pay themselves first. They will literally cash a check and take an amount from this to place into a long-term savings account which they have set up for only themselves. What they are saying in this action is “I am worthy.” It is really powerful.

Explore how you spend your money. You may pay the mortgage or other bills; you may purchase a beer or another experience. All of the ways you spend money point to how you value your life. If you are not paying yourself first you are not valuing yourself. This has important implications as to the amount of wealth you can acquire.

Set something up for yourself automatically where you give up control. Anything can do to begin this process and it is incredibly important, especially if you feel you have no way of doing this. Just start. The rest will take care of itself. Many of us, if you are like me, try to worry about how it will all work. Let that go for now, take $10, $100, or $500, whatever the value would be for you, and pay yourself first. It will work, trust me.

Money is energy, therefore it needs to flow.

There are people who have a lot of money and they are unhappy people. There is the opposite too. It does not matter how much or how little money you have in comparison to someone else. The important thing to realize is that you value yourself, you value money, and you keep it moving. You can keep your money moving by giving small amounts of it regularly to people and missions you love. It must feel good, and when it does, this will generate gifts that will come back to you.

In your long-term investments, keep your money moving by having accounts set-up in conservative investments. These will ensure your capital remains certain and you circulate the energy you collect in the form of money. Money is like water, it becomes stagnate without a flow.

Valuing money is all about the subtleties in how we manage our thoughts and emotions. Successful people care for themselves, steward their money, keep it moving, and have rituals established that allow them to do this without emotional swings which can deter us from bigger dreams. Money can fulfill your “why” in life. Why do you want more money?

Who’s Financing Inventory and Using Purchase Order Finance (P O Finance)? Your Competitors!

It’s time. We’re talking about purchase order finance in Canada, how P O finance works, and how financing inventory and contracts under those purchase orders really works in Canada. And yes, as we said, its time… to get creative with your financing challenges, and we’ll demonstrate how.

And as a starter, being second never really counts, so Canadian business needs to be aware that your competitors are utilizing creative financing and inventory options for the growth and sales and profits, so why shouldn’t your firm?

Canadian business owners and financial managers know that you can have all the new orders and contracts in the world, but if you can’t finance them properly then you’re generally fighting a losing battle to your competitors.

The reason purchase order financing is rising in popularity generally stems from the fact that traditional financing via Canadian banks for inventory and purchase orders is exceptionally, in our opinion, difficult to finance. Where the banks say no is where purchase order financing begins!

It’s important for us to clarify to clients that P O finance is a general concept that might in fact include the financing of the order or contract, the inventory that might be required to fulfill the contract, and the receivable that is generated out of that sale. So it’s clearly an all encompassing strategy.

The additional beauty of P O finance is simply that it gets creative, unlike many traditional types of financing that are routine and formulaic.

It’s all about sitting down with your P O financing partner and discussing how unique your particular needs are. Typically when we sit down with clients this type of financing revolves around the requirements of the supplier, as well as your firm’s customer, and how both of these requirements can be met with timelines and financial guidelines that make sense for all parties.

The key elements of a successful P O finance transaction are a solid non cancelable order, a qualified customer from a credit worth perspective, and specific identification around who pays who and when. It’s as simple as that.

So how does all this work, asks our clients.Lets keep it simple so we can clearly demonstrate the power of this type of financing. Your firm receives an order. The P O financing firm pays your supplier via a cash or letter of credit – with your firm then receiving the goods and fulfilling the order and contract. The P O finance firm takes title to the rights in the purchase order, the inventory they have purchased on your behalf, and the receivable that is generated out of the sale. It’s as simple as that. When you customer pays per the terms of your contract with them the transaction is closed and the purchase order finance firm is paid in full, less their financing charge which is typically in the 2.5-3% per month range in Canada.

In certain cases financing inventory can be arranged purely on a separate basis, but as we have noted, the total sale cycle often relies on the order, the inventory and the receivable being collateralized to make this financing work.

Speak to a credible, trusted and experienced Canadian business financing advisor as to how this type of financing can benefit your firm.

Looking for Ways To Finance a Franchise? There Is Only 1 Way When Financing a Franchise Investment!

You’re there. You have made the decision. You’re committed. You have timelines now. We’re talking about your franchise finance decision and the next challenge you have in the franchise process – financing a franchise. How many ways to finance a franchise are there? Only one… the right way! And we’ll show you how.

The ability to finance your franchise properly and satisfy the requirements of the franchisor without putting you overly in debt is what it’s all about of course. And if you do it right then you of course have the potential to grow a business, profit from it, and build owner equity for either long term resale of personal financial gain. That’s simply what it’s all about, and boy does it help if you like what you are doing, at the same time taking on the entrepreneurship role in Canadian business.

The good news is that your are lucky, because franchising couldn’t be any hotter or more popular. Franchises move goods and services in the billions in Canada, and you’re now part of that movement.

But let’s be realistic, whether it’s a franchise investment of any other business start up the same critical needs apply relative to planning and financing.

Homework. Did you hate it in school? Well here it is again because we strongly suggest to clients that you are now in homework mode when determining how financing a franchise works. It’s all about planning, which includes ensuring you have a profitable potential business on your hands, as well as understanding ways to finance a franchise in Canada.

Business plans are critical to your franchise investment. It’s a case of demonstrating your business has both profit potential plus, and this is what interests the lender, that you have the ability to repay your debt and loans. The franchisor naturally is interested in long term success of the chain, and your ability to pay royalties as they become due, usually monthly.

When you address the franchise finance decision you must consider a number of items – they are as follows – what is the total all in cost, what methods are available to finance each part of the cost breakdown, and finally, and perhaps most importantly, how is the actual financing done.

The costs to assess in a franchise finance investment are as follows – the initial franchise fee, the cost of fixed assets or leaseholds to your business – i.e. equipment, signage, vehicles if required, etc. And finally, if you did all that and didn’t address working capital for ongoing operations and growth then you are setting yourself up for failure.

Clients are always looking to us for a magic solution and a one stop finance strategy for their franchise investment. The closest we can come to that is the government BIL/CSBF loan, under which the majority of franchises are financing in Canada. You can successfully augment this strategy by equipment financing for a variety of assets as well as a small working capital loan, usually unsecured. Don’t forget also that your own owner equity investment becomes the final piece of the puzzle.

And getting back to our business plan, ensure that you have covered off all the debt you need and that if reflects your ability to pay it back.

Financing a franchise. Challenging? Yes, we guess so. Possible? Of course. Speak to a trusted, credible and experienced Canadian business financing advisor with franchise experience who will help you navigate, successfully, the only way to finance your new business – the right way!