Trade Finance Options

Do Your Clients Need Working Capital?

By Guest Author Lee Doernberg of Liquid Capital Funding

Receiving a large purchase order from a new or existing client is certain to be met with enthusiasm by the employees who helped earn the order. To capitalize on this new business opportunity, however, the owner of the company must be able to finance the order.

Letters of Credit. Given the growing volume of international transactions, more and more manufacturers of products are requesting payment by a Letter of Credit (LC). The most popular type of LC is the Irrevocable Letter of Credit because it cannot be cancelled or modified unless both the seller and buyer agree to the changes. An LC protects both the seller and buyer; it ensures that the buyer (and, ultimately, the buyer’s customer) gets the products ordered and, in turn, it ensures that the supplier gets paid.

To qualify for an LC, banks usually require their customer to have a line of credit they can pull from to satisfy payment of the LC or they must provide the bank with collateral equal to 100% of the amount of the LC.

Purchase Order Financing. This type of financing is easier to qualify for provided the purchase order is from a creditworthy customer because the business does not have to go through traditional bank underwriting requirements.

Here’s how Purchase Order Financing works through Liquid Capital:

  • XYZ Company receives a purchase order for merchandise from its client
  • Liquid Capital issues an LC to the manufacturer of the merchandise
  • The manufacturer produces the product. An inspection company verifies that the product meets the criteria of the end customer
  • The product is shipped to XYZ Company’s client
  • The manufacturer submits the LC to his/her bank and receives payment
  • The payment via the LC creates an inventory loan to XYZ Company from Liquid Capital
  • XYZ Company’s client accepts the merchandise and the manufacturer gets paid by cashing the LC
  • The client is invoiced; the Accounts Receivable is factored by Liquid Capital
  • The proceeds of the factoring pays off XYZ Company’s inventory loan

There are many benefits to Purchase Order Financing through Liquid Capital. They include:

  • The elimination of working capital constraints on the Company, which can inhibit a Company’s ability to grow
  • The ability to accept large purchase orders and increase sales without incurring bank debt or having to raise equity capital
  • It enables a Company to accept large seasonal orders
  • It enables a Company to strengthen ties with suppliers/manufacturers based on their ability to guarantee payment

In addition, Purchase Order Financing can help a Company grow quickly and earn increased profits.

As always, thank you in advance for considering Liquid Capital as a source of capital for your audience. To learn more about how we can help businesses finance purchase orders, call me or send me an e-mail.

Best wishes for a Happy New Year!

Lee Doernberg
Liquid Capital Funding

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