Stanton Financing Guide

A letter of credit is a financial tool that streamlines the process of doing business both nationally and internationally. It provides a guaranteed (usually) form of payment to your suppliers while limiting your risks in the transaction. To better understand letters of credit, let’s look at an example.

Let’s say that you own a widget distribution company. Let’s also say that your good customer provides you with a very large purchase order for widgets. Since you distribute (rather than manufacture) widgets, you’ll need to place an order with your widget supplier to be able to fulfill the order. In this case, you want to use a new widget supplier that is located in Asia and does not know much about your company.

Your first step is to try to buy widgets from your Asian supplier. Now you have an interesting situation. Your supplier is very likely to ask for cash up front or some guaranteed form of payment before manufacturing and delivering the widgets. You, on the other hand, will want to pay upon receipt, or better yet, ask for 30-day payment terms (meaning, you pay 30 days after receipt). As you can see, both parties are trying to limit their risk.

To solve this situation you can go to the bank and ask them to create a letter of credit for this transaction. The letter of credit stipulates that your supplier will be paid by the bank, if they comply with the terms of the L/C. Usually, to comply with a letter of credit, documentary evidence that proves delivery of a quality product per the agreement needs to be provided.

Now your supplier can go ahead and deliver the widgets, knowing that he will be paid if he delivers according to the agreement.

As you can see, this protects your supplier, and the letter of credit also protects you, because it ensures that the supplier is paid only if he complies with the agreement. Although letters of credit come in a number of flavors, in general they tend to guarantee payment by the issuing bank, which gives suppliers a level of comfort.

Of course, once funds are paid to your supplier you will need to pay the bank. Usually, banks will ask that you have a line of credit (or similar financing) so that they can satisfy payment for the LC from that account. Unfortunately, this also means that to qualify for a letter of credit you almost always need to qualify for traditional bank financing. This is not easy for new, small or growing businesses. If you cannot qualify for a letter of credit, your best alternative is to secure trade financing use purchase order financing.

About Invoice Factoring Group
We are business financing specialists and can provide you with a letter of credit or purchase order financing. Marco Terry, the president, can be reached at 866 730 1922

Copyright (C) 2006. Commercial Capital LLC. Article may be reprinted if it is not modified.

Knowing the ends and outs of purchase order financing is an asset to almost any small or medium sized business owner. In the sections below you will learn just exactly what purchase order financing is, the benefits, drawbacks, who can benefit the most from it, and would be likely to qualify for it.

What is purchase order financing?

Purchase order financing is another way to get a loan for the capital you need to finance the supplies, production, and shipping of a product after you have received a purchase order from a buyer. Once you produce the finished goods and are paid, you can then pay off your invoice to the company who provided you with funding.

This is a perfect solution for small start-up businesses who have orders coming in but don’t have the finances required to order supplies, pay their workers, and ship the finished goods. This would also be a great opportunity for a small to medium sized businesses who have found themselves with a sudden large customer jump or are graced with a very large order.

Who can benefit from purchase order financing?

- Purchase order financing is great for small to medium sized businesses who usually do not have the funds for large orders that could sky rocket their sales and turn their product into a household name. Image pitching your product to a major retailer, receiving an order from them, and then not being able to produce the goods needed because you are short on funds. purchase order financing could save you from this heart-breaking, and business-breaking, blow.

- A company who has received an order so large that they would need a six-digit loan. A purchase order financing company is not there to finance every single order so that a business does not have to spend any money up-front, it is merely a means for businesses to get the funds they need for an order that would otherwise be out of their reach financially.

- Only those who are reselling an already made product that they have to purchase in order to send to the buyer, such as drop shippers, or are
producing a product to sell may be eligible to receive purchase order financing.
For example, if you are selling a service, you would not qualify to receive purchase order financing. Although it may take capital you do not have to hire employees to perform the service, it would still not qualify under most company
guidelines.

What are the drawbacks of purchase order financing?

There are few drawbacks to receiving purchase order financing, however, there is one major qualification that could potentially stand in your way. When a company grants you funding, they assume they will be paid after your
customer receives the finished product and pays you. Because of this, many funding companies will check the credit of your buyer(s) to be sure that you will not get ripped off and be left without the money to pay your invoice. Purchase order financing companies are not only taking a chance on you, they are taking a chance on your customers as well. They are the ones with the real risk if the deal goes sour. Knowing that your customer is credit worthy gives the company the peace of mind to lend to you.

What to look for in a purchase order financing company

You should find a company that is right for you. These guidelines may help you better understand what type of company you should apply with:

- Find out what their minimum and maximum funding guidelines are to ensure that they meet your financial need. If a company only funds loans that are in excess of what you are looking for or has restrictions that are less than what you need then you are best moving on to another company.

- Find out what other eligibility requirements they have to
ensure that you do qualify under their guidelines before you waste any time applying for their loan.

- Find out what length of time you have to repay the loan and
check to see if it meets with you production and billing schedules to ensure that you will have the funds in time.

- Once you have found a company that works for you, make sure
that they have a fee or interest rate that your company can both afford and be comfortable with.

In the world of loans and financing, purchase order financing may be a small business’s best ally. They will usually have repayment terms that allow time for production of a product and it is the fastest way to receive financing without losing any investment in your business. Also, since they will check into the credit worthiness of your buyers, they may save you from producing a product for a deadbeat buyer. All in all, purchase order financing is a way to finance a large order that may get your product into the hands of a top notch retailer.

David Springer is a consultant for Sovereign Funding Group. Sovereign Funding Group is an experienced, reputable company that offers convenient, no-risk services to help you with the selling of your deferred payments and business financing including purchase order financing.

Do you have bad credit? It’s not the end of the world. If you look closely enough, many auto loan companies can get you the financing you need, and in the process, help you make your credit rating better. There are bad credit auto loans available for you regardless of your history. Here’s a guide to getting one.

First, compare interest rates. Some opportunistic companies may take advantage of your bad credit history by imposing ridiculous interest rates and stifling payment terms. Don’t let them abuse you. Interest rates of 10 percent are decent – anything more is just wrong. Beware! Some companies will charge as much as 20 percent or more. The key to landing a better rate is to shop around. There are plenty of reasonable lending companies out there. Never sign up for the first offer. Take time to shop around and see which company is willing to bend over backwards to get your business.

Choose a company with a wide network. The more auto dealerships the car loan company is connected to, the better your chances of getting the best deal. Go with a company that has a nationwide network of car dealers that grant bad credit auto loan programs. If you don’t like the deals offered by one dealership, they can easily hook you up with another. You will also have more choices – more cars or trucks to choose from.

Do not take anything less than excellent customer service. Remember that despite your bad credit, you are still a customer – you deserve the best service available for buyers with credit problems. Choose a company that will quickly and respectfully find you a car dealership that would be glad to give you a car loan at reasonable rates. How can you tell if a company has good service? Your first impression can say a lot. When you called or went personally to the company to inquire about bad credit auto loan facility, did they immediately give you everything you need to know? Do they answer your questions satisfactorily? They should be able to make your car buying experience a smooth and positive one, and treat you in the same polite manner they treat their regular good-credit customers.

Bad Credit Auto Loans provides detailed information on Bad Credit Auto Loans, Bad Credit Auto Loan Financing, Bad Credit Auto Loan Refinancing, Bad Credit Auto Loan Online and more. Bad Credit Auto Loans is affiliated with Bad Credit Car Loan Rates.