Today is the second part of a two-part interview with Carolyn McClure, Senior Vice President, Midland American Capital, one of the few purchase order financing firms in the U.S. and Canada. Purchase order financing can be a viable option for younger companies with orders from reputable, credit-worthy firms and government entities and older companies with a strong customer history.
Tiffany: How does purchase order financing differ from letters of credit?
Carolyn: Purchase order funding funding is an advance against your customers’ purchase order to purchase inventory.
Tiffany: In other words, purchase order financing allows the owner of ABC Products Company to obtain funds to pay a manufacturer or distributor to make or provide the goods ordered by ABC Products Company’s customer, via the purchase order.
Carolyn: A Letter of Credit (LC) is an instrument used to disburse funds and is typically used for import/export. The LC is a letter issued by our bank to the supplier’s bank to serve as a guaranty of payment. The supplier is able to deposit funds on the Letter or Credit with a signed Bill of Lading and Quality Control Inspection Report.
Tiffany: And what is the difference from receivable financing?
Carolyn: Receivable financing and Invoice Factoring is the assignment of the Accounts Receivable to a Funding company. The AR Funding company advances on the receivable and waits for payment from the customer. This can only be done once the product or service has been delivered.
(Note from Tiffany: Some receivable financing firms do not take assignment of the receivables. Instead, they advance a line of credit against the receivables and collect funds directly from you, the financing firm’s client, not from your business’ customers. However, all factoring firms take assignment of the receivables and collect directly from your business’ customers. This is the primary difference between AR financing and factoring.)
Tiffany: Does Midland American Capital offer other types of financing or do you specialize solely in purchase order financing?
Carolyn: Our primary focus is purchase order funding and invoice factoring.
Carolyn: Example: More Complex Fulfillment
Purchase Order Funding is used on a transactional basis when Mid American Capital’s client, ABC Products Company, needs the cash to buy inventory to fill their customers purchase order. Midland will advance funds to cover the cost of goods and components to fill the purchase order. The advance is paid direct from Midland to ABC Products Company’s supplier via wire or Letter of Credit.
Conversion to factoring: For Midland, all purchase order advances must convert to factoring proceeds upon fulfillment of the purchase order. Midland follows the inventory to the receivable and factors the invoice.
About Carolyn McClure: Carolyn McClure is a dedicated Business Development Officer with over 16 years of experience in leasing, factoring and purchase order financing. Carolyn is a tireless networker, an avid supporter of small business and minority groups, and is constantly striving to provide personalized working capital to growing businesses. Contact her at Toll Free) 800.753.3300 Cell) 312.543.8976 Fax) 312.212.5958, email email@example.com