Purchase Order Finance and Choosing the Right Provider

Saturday, October 13, 2018

By Edward King, Founder and Managing Partner King Trade Capital

Choosing the right purchase order finance company is not as easy as it once was. When I founded King Trade Capital over 26 years ago there were only a couple experts that had the capital and understood the unique risks of financing a company’s sales growth by taking on the performance risk of financing the inventory needed to fill purchase orders when the balance sheet did not support the financing. It was a very unique offering provided by us pioneers and experts that understood the value provided and the risks.

Today in a world of unending liquidity and competition to deploy capital it seems every new lender claims to have a PO finance product, which they don’t. Finding the right funding source to fuel a company’s growth, whether aided through PO finance or more traditional asset based finance, has become more complicated than ever.

Finance is not unlike the evolution of the ice cream business. Once there were 31 flavors of ice cream now there are hundreds of flavors. The same has happened to finance, once there were just banks and a few asset based lenders and factors doing receivables finance, now there are thousands of sources of capital offering hundreds of different types of financing.

The finance world is littered with new finance companies that have raised a bunch of capital in the good times to take advantage of an investment thesis that candidly has already been diluted by all the new entrants and competitors. This competitive environment benefits company’s utilizing the financing since there is a lot of inexpensive money taking big risks.

But with the many new entrants comes new risks for customers. Many of these new lenders don’t have the institutional knowledge and balance sheet strength to make it through small issue with a client, nor do they have the temperament or understanding to work out of many of these situations without harming their clients.  It opens customers up to the great risk of signing up with an overly aggressive lender that doesn’t know their products or its risks and when they have a few small problems in their portfolio their client has problems with them.

When I started King Trade Capital (KTC), more than 26 years ago, I found that many small to medium-sized companies needed an alternative finance solution that would allow them to finance sales growth even if their traditional collateral or internal capital was not sufficient. This is still true today.

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 substitute or enhancement for our client’s balance sheets. It’s an art not a science to provide PO financing and new lenders that dive into this space can easily be wiped out by one mistake because they don’t understand the risks and the needed oversight and structure of the finance solution to protect the client and the PO lender.

King Trade Capital from the beginning established a client centric solutions based finance company of high integrity. We established ourselves with sound financial backing from the beginning to allow our experienced team to have a uniquely flexible and creative approach to what 26 years ago was a new form of finance, purchase order and contract finance.

KTC’s offering is still unique and valuable in the finance world today and is an excellent option for growing businesses while not giving up equity in order to grow sales.

Even though we grow companies without asking for equity we are not a substitute for equity when the company needs equity to survive. We take a structured approach to helping our clients grow sales and profits through financing the inventory needed to fulfill larger and larger sales.

Our finance options compliment the traditional lenders we work in conjunction with whether it’s a bank, ABL or factor. Our solutions based PO finance options allow companies to finance the inventory needed to fill purchase orders and contracts when traditional finance sources can’t provide sufficient liquidity.

PO finance is not a business that is for lenders that are 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 requires close and continual oversight to help clients grow unencumbered by traditional liquidity constraints.

We at King Trade Capital focus on what we do best, PO finance. We don’t factor, provide real estate or equipment loans etc. we focus on providing our clients the best purchase order finance solutions available, allowing clients to grow sales unencumbered by traditional lending formulas.

How do you choose the right PO finance source? My belief is that identifying the right PO finance source is relatively straight forward. Look for a PO finance source that has been around for a long time, 10 or 20 years, providing the same service under the same name. Make sure the lenders aren’t people that have jumped from one place to the next raising new money for a new business model.

 A PO finance company should be heavily capitalized so that they can easily weather any issues that invariably arise when financing the delivery of goods needed to fulfill client purchase orders.

A PO finance company should be run by a team that has a great deal of experience in this specialized finance space and understands the nuances of growing a small to medium sized businesses. Last but not least you want to deal with a company that has individuals of high integrity that listen and understand what helps a client thrive. No amount of legal documents can protect against a company that has individuals that make dishonest decisions or offer unfulfilled promises.

If you are a finance company, investment bank, consultant, broker or prospective client looking for a strategic relationship with a PO finance company, King Trade Capital offers more than 26 years of strong financial capacity, expertise and integrity. We value our many established relationships and look forward to establishing many more relationships in the future. We offer financing for clients in the US, UK and Canada.

All of us at King Trade Capital appreciate the confidence that our referral sources and clients have shown over the years. We look forward to continuing to offer the best PO finance solutions available for years to come.

Please visit us at www.kingtradecapital.com If we can be of help please don’t hesitate to call us at 214-368-5100 or contact our team at info@kingtradecapital.com