How Does Purchase Order Financing Work?

When a business finds itself in the position of not being able to promptly fill a customer's purchase orders, it can be in real danger of losing those orders and the potential profit they represent. Worse yet is the potential loss of any future orders from that customer.

Brookridge recommends that such businesses examine the possibility of factoring their accounts receivable first as that can often give the needed cash to meet these needs and is also somewhat less costly. However when this avenue is not available,  Purchase Order financing can be the answer.

Where the purchase order is non-cancelable and from a strong creditworthy customer, Brookridge will advance the actual funds necessary to fill the order. Usually this will entail either direct payments made by Brookridge to third party suppliers or the posting of Letters of Credit by Brookridge on behalf of its client.

Purchase Order Financing is available to virtually all industry segments, with the explicit exception of construction.

In practice as soon as the purchase order is filled and an invoice can be generated, then Brookridge will factor that invoice and use the initial payment to retire the purchase order advance and fee, with the overage going to the client. Obviously the second payment on the factoring will make up the balance of the profit for the purchase order financing client.

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