How We Helped Our Client to Close a PO Financing Deal Recently

A Purchase Order was received from our client's well-known buyer in the U.S. on Open Account payment term without the support of an LC or D/A under documentary collection. Our client does not have adequate cash flow to kick start the manufacturing process. Hence they reached out to us for advice on how to go about starting this process of meeting the buyer's production request. We bounced off the idea of seeking Purchase Order Financing with one of our pre-approved lenders in order to assist our client to obtain the much needed cash flow to commence the production flow.

We communicated with this particular lender that we have been working with at the moment and presented our client to them outlining their past track record and accomplishments in their line of business. Associated risks were identified and what the lender would need to mitigate risks. Obviously from the lender's perspective they would have their own credit criteria to underwrite this type of risk but our presentation certainly helped the lender in reinforcing their understanding of the risks involved. Ultimately they agreed to extend PO Financing to our client based on a certain percentage of the PO value with the source of repayment coming from settlement of the accounts receivable by the buyer. Getting in touch with the buyer to confirm the existence of the PO prior to financing is crucial to ensure that the PO is genuine.

Creditworthiness of the buyer naturally plays an important role in the lender's credit adjudication process. Without a creditworthy buyer, the whole PO Financing deal would have been a no go. This is a critical factor to bear in mind when the exporter is looking for PO Financing. Secondly the lender would need to get comfortable with the performance risk of the exporter. Past track record is essential as a factor for evaluation but the lender would also look at the likelihood of non-performance for this particular deal and some kind of security might be required to secure that the exporter also has a vested interest in completing the transaction.

We are pleased to announce that the PO Financing deal has been closed recently with the lender which greatly assisted our client in meeting their cash flow gap. They have been experiencing a cash flow crunch in the past 12 months in the wake of COVID-19 due to a sudden drop in export activities. Prior to this deal, our client had no choice but to turn down enquiries due to inadequate cash flow to take on new purchase orders.

If you have a similar scenario, please reach out to us for further advice at info@supplychainfinanceadvisory.com.