Not All Purchase Order Finance Companies Are Equal

Tuesday, September 25, 2012

Choosing the right purchase order finance company is important for a client and a referral source. It can have a big impact on the success of a growing business and its senior lender.

When I started King Trade Capital (KTC) almost 20 years ago I found that many small to medium-sized companies needed a finance solution that would allow them to finance growth even if their traditional collateral or internal capital was not available. PO finance is in simple terms a substitute for equity; you could say our financing is transactional equity and our balance sheet and capital is a replacement or enhancement of our clients.

From day one we at King Trade Capital felt it was important to establish our business with strong financial backing and a solution driven, client centered approach based on honesty and integrity. Our solid financial position and experienced team offers our clients and referral sources unmatched creativity, consistency and reliability and has done so for the past 19 years.

KTC’s finance offering is unique and is an excellent option for growing and recovering businesses. Our purchase order finance options compliment and work in conjunction with traditional lenders whether bank, ABL or factor. Our solution based PO financing allows companies to finance the inventory needed to fill purchase orders and contracts when traditional finance sources can’t. Once the goods are shipped and invoiced we have a receivable lender that is in place with the client to advance on the receivables once created.

The understanding of PO finance has come a long way. In the old days each time we introduced King Trade Capital and our unique form of Purchase Order and Contract finance we had to spend a great deal of time describing what purchase order finance was prior to even getting into the discussion about what the client needed. Today, PO finance is generally understood by many in the finance world and it seems to pop up on many web sites. However, since it is a niche business there is not much known about the companies that provide or purport to provide PO finance or if they provide a suitable solution.

PO finance is not a business that is for the faint of heart or for those that don’t have direct experience in this form of finance. It is a business of many pit falls and continual oversight and there is no one way to structure. We at King Trade Capital focus on what we do, PO finance. We are not a bank, factor, equipment lender, real estate lender etc. we are an investment company that provides the widest array of purchase order finance solutions to our prospects, clients and referral sources. We offer unmatched financial strength, expertise and integrity that the finance industry has grown to trust. 

We are fortunate to have many friends in the lending community whether bank, assets based lender, factor or consultants that trust us as a strategic relationship. However, over the years we have seen many lenders make accommodations for customers by providing “PO advances” which really are reserve over advances. This is not PO finance, but unstructured advances. We have also received calls from some of these friends about problems after a client has an issue with a delivery because important structure and monitoring procedures were not in place.

The risk of PO finance requires close oversight and the monitoring of client performance is paramount. If goods are not manufactured properly or delivered on time there can be major issues. KTC is established to manage the process, and monitor issues including order cancellations. Because of this close oversight we can offer a client up to 100% of the cost of inventory to fill their orders. KTC’s oversight, inspections and close monitoring is a benefit to the lenders we work in conjunction with since our process mitigates the risk of fraud and quality issues that can impact account receivable collateral.

How do you choose the right PO finance source? My belief is that identifying the right PO finance source is relatively straight forward. In such a specialized business, find the companies that have longevity, who has offered an uninterrupted source of PO financing for 10 or 20 years. The many recent failures and casualties in the PO finance business highlight the importance of partnering with the right PO finance company so a client or lender does not get caught in a difficult situation.

A PO finance company should be heavily capitalized, with its own capital, so that they can make their own financing decisions and can easily weather any issues that invariably arise when financing client purchase orders. A PO finance company should be run by individuals that have a great deal of experience in this specialized finance space and understand the challenges of operating and growing small to medium sized businesses. Last but not least, you want to deal with a PO finance company that has individuals of integrity and consistency. No amount of legal documents can protect against a finance company and individuals that are dishonest or make unpredictable and inconsistent decisions.

If you are a bank, finance company, investment bank, consultant, attorney or prospective client looking for a strategic relationship with a PO finance company, King Trade Capital offers more than 19 years of growing financial capacity, expertise and integrity. We value our many established relationships and look forward to establishing many more relationships in the future. All of us at King Trade Capital appreciate the confidence that our referral sources and clients have shown over the years and we look forward to continuing to offer the best PO finance solutions available in the market for years to come.

By Edward P. King
Managing Partner
King Trade Capital

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