To be a successful scrap metal dealer you must be able to handle large orders – constantly and consistently. You must be able to pay for the scrap metal costs in advance (and at the best prices) and then wait 30 to 60 days until the transaction is settled to get your investment and profit back. However, few scrap metal traders can handle many large orders at a time while waiting 30 to 60 days to get paid. Therein lies the problem.
Many dealers try to go to the bank hoping to get business financing. However, they soon discover that most banks don’t understand the recycled scrap metal business well and don’t have the right solutions for the industry. Furthermore, getting bank financing is especially hard since banks require that you show three years of profitable business history and have sizeable collateral before making a loan.
Either way, banks loans don’t always work well for scrap metal dealers. In this industry, once you find the best scrap metal prices, you must move quickly to seal the deal. A better solution than bank financing is to use purchase order financing.
Purchase order funding provides you with the necessary funds to execute your confirmed POs. It provides you the financing to pay scrap metal suppliers, enabling you to deliver the goods and close the sale. Purchase order financing is easy to use and works as follows:
1. The scrap metal dealer / trader secures a purchase order from a customer
2. The purchase order finance company then pays the scrap metal costs from the supplier yard (usually by placing a deposit or using a letter of credit)
3. The yard delivers the scrap metal to the customer according to the order
4. Once the customer pays for the scrap metal, the transaction is settled
Purchase order financing has a number of advantages over conventional bank financing. First, it’s very easy to obtain. The biggest requirement is that your company have purchase orders form commercially credit worthy customers. And second, it can be set up quickly. Most of the times you can get the financing in days (rather than months). And as opposed to bank financing, most startups will qualify.
Many times, po financing can be used in combination with factoring financing. Combining these two products can allow your business to fully optimize its cash flow, enabling it to grow at an even faster rate.
Although not widely used, these financing tools are quickly being adopted by growth minded scrap metal dealerships and traders. Be sure to consider them as options the next time your company needs financing
By: Marco Terry
Posts Tagged ‘Purchase Order Financing’
How Scrap Metal Traders Can Leverage Purchase Order Financing
December 26th, 2009Posted in Articles
Tags: Bank Financing Better Solution Business Financing Business History Collateral Conventional Bank Cus Finance Company Letter Of Credit Metal Business Metal Suppliers Metal Traders Necessary Funds Profitable Business Purchase Order Finance Purchase Order Financing Right Solutions Scrap Metal Dealer Scrap Metal Dealers Scrap Metal Prices
Importing Goods from China? Learn How to Use Sales Financing
December 23rd, 2009It is no secret that many small importing companies have become big importing companies by capitalizing on the opportunity to buy goods from Chinese companies and re-sell them at great profit margins. With that accelerated growth comes a very big challenge. Sooner or later, you will get an order that exceeds your available financing.
Now what? Do you turn the order away? Do you send it to the competition?
Purchase order financing can help you deliver on this order and make the sale, while using none (or little) of your own money. It can help you make big sales and grow your company – sometimes exponentially.
To qualify for purchase order financing, you must meet the following criteria.
Your business must invoice between $50K and $600K per month
You must sell finished goods (e.g. be a re-seller or distributor)
You must sell your products to other businesses or to the government
Your profit margins must be at least 15% (higher is better of course)
If you meet these criteria, purchase order financing can help you deliver on those big orders and help you take your company to the next level. PO financing is simple to use and easy to qualify for.
A transaction works as follows. Once you have an order in place, the financing company opens a letter of credit naming your Chinese supplier as the beneficiary. The letter of credit (or LC) guarantees payment to the supplier, provided they deliver the products correctly. This enables you to complete the transaction.
Once the order is delivered to your end client, an invoice is generated. The transaction is settled once your end client pays the invoice, usually 45 days after receiving it.
As opposed to other types of financing, PO financing is easy to qualify for and to set up. The set up time is usually a couple of weeks. As you can see, this type of financing can help you grow your company by enabling you to take large orders that in the past you would have turned away.
By: Marco Terry
Can’t get Venture Capital Financing. Look at These Options
December 22nd, 2009Many business owners try to finance their growing businesses by going to venture capital or angel funding groups. Although both financing options provide a great way to finance a business, they are usually hard to qualify for. And furthermore, they all require that you give up some business equity in exchange for funds. That, needless to say, can be a very steep price to pay.
There are some business financing alternatives that can allow you to finance your business, almost as effectively, without having to give up any equity. As opposed to venture funding or angel funding, these options are easy to qualify for and do not require the endless documentation and due diligence that venture money requires. .
However, these can only help you if you meet the following criteria:
1. Your business is established and has commercial (not consumer) clients
2. Your business invoices between $40K and $900K per month
These alternatives will help you if:
1. You need money to meet payroll, pay rent or pay supplier
2. Your customers pay you in 15 to 60 days
3. You need (or wish) your customers to pay you sooner
Your first option is called factoring (also known as invoice factoring). Factoring is ideal for businesses that cannot afford to wait 15 to 60 days to get paid by their clients. Factoring provides you with financing that is tied to your invoicing. Basically, the more your company invoices, the more financing you qualify for. This enables you to grow your company – many times exponentially – without having to give up equity.
Your second option is called purchase order financing. It works well for re-sellers, distributors, traders and wholesalers. Purchase order financing is ideal for business owners that have a large purchase order in hand, and who cannot afford to pay their suppliers to deliver the product. PO financing enables you to get a letter of credit, backed by the financing company, to pay your suppliers. This allows you to deliver on the purchase order and effectively make the sale. Usually, very little – if any – of your money is required for the transaction.
Both alternatives are easy to qualify for, take days (or a couple of weeks at most) to set up, and when used correctly allow you to grow your company exponentially.
Posted in Articles
Tags: Angel Funding Backe Business Financing Business Invoices Business Owners Can't Capital Consumer Clients Due Diligence Financing Financing Business Financing Options First Option groups Ideal Invoicing Letter Of Credit Look Options Payroll Purchase Order Financing Steep Price These Venture Venture Capital Financing Venture Money Wholesalers
