h2>What is order financing for sourcing?
To run a proper business, you do not need to use all your savings. A purchase order can give you an advance so that you can obtain the required products to sell to the buyers who have submitted written purchase orders. 100% of your purchasing cost will be covered at an average rate of 3 % every 30 days on used funds with rates as low as 1.6% to as high as 6% per month.
This kind of financing is for resellers and people who deal with large quantities of goods or import and export finished products. This is ideal when
- You are not the manufacturer for the products you sell
- You purchase goods from a manufacturer and sell them without further customizations.
- Your manufacturer has a good history of shipping the products on time
- The purchase order has the required minimum value
How PO financing works :
- An order worth 10,000 USD is placed, your supplier charges you 6000 USD for the same quantity of goods and you are supposed to repay it later.
- The transactions are reviewed by a PO company and it verifies whether their criteria are met.
- The amount directly reaches your supplier in the form of a Letter of Credit. When dealing with overseas suppliers, a letter of credit has to be used for making the payment; if there are domestic suppliers available, a wire transfer may be done.
- The supplier then ships your goods directly to you or your customer based on your choice. The customer then gets to inspect and accept that order.
- You contact your customer regarding payment
- The full price will be paid by the customer on your Invoice to the PO company
- The PO company takes up their fees and the remaining balance is returned to you.
Situations when PO financing is useful
When your sales start to increase, the amount of capital that you hold may not be enough. In this scenario, you can use the PO finance so as to complete your remaining orders and reduce the burden on your working capital. Cash flow problems are encountered at one time or another by small businesses as well. Cash flow problems can be dealt with during these tough periods.
PO financing is a reliable funding source if you want to support your growth opportunities.
Cash flow management:
For a growing business it is important to have a regular and stable cash flow. Amazon pays your balance every two weeks. So there is a time period when you have to wait before taking up the next inventory order. Your cash flow can be maintained and improved without relying on outside funding. Below are some ideas to do so:
- Reduce Inventory:
You have to prevent over-ordering because you do not realize the returns you receive until late. So, do a thorough inspection of your Turn over, the amount of times you needed to replace an inventory in a given time frame. As time passes by you will be successful at planning the inventory according to the fluctuations that arise with seasonal changes.
You can use good inventory management software as it will help you to collect all the required data, manage the production and display to your customers what products are available. If you use various channels to sell your products it can synchronize the inventory counts.
- Reduce Lead Times:
Many Amazon sellers can wait for more than 20 weeks between order receiving and order placing. It is not only dependent on Geography – when shipping products from the US or Europe it takes about a month. The only things which you should worry about are how to avoid delays in shipment, delays in payment, or communication errors which can lead to capacity problems with a chosen supplier.
These problems can be avoided by choosing a Trustworthy supplier.
Many producers have maintained a small margin when dealing with a large number
of units. That is why they need to set a MOQ(Minimum Order Quantity). They help you to gain access to the best of products and they may also offer excellent service; their MOQ is just a reflector of the cost and the raw materials that are needed by them to produce the required goods. However, if this damages your service time you must tell the supplier to lower their MOQ.
Negotiate Favourable Payment Terms:
Find out how much you can pay as a downpayment. Usually, 30% down payment is accepted and 70% is to be paid when the products are shipped.
As your connection with the supplier improves you can also negotiate for different terms and decide how much is to be paid.
How can I source custom branded products and how to source private labels?
You can source wholesale products as well as custom-made products owned by private label manufacturers. You can lower your cost of production and gain more margin. However, you decide to use your name, the quality of the product should be improved. There are various factors like the prevailing economic conditions and political conditions that influence a customer’s decision for using a foreign product. You also need to protect your label and that is why these steps are important.
- Register your trademarks as well as copyrights.
- Make an agreement that safeguards your IP rights, it should be in that language and applicable in court.
- Only connect with a trustworthy manufacturer who is in for a long run.
A sourcing agent can help you to find the right supplier and also supports you when you select a manufacturer till the time your products are delivered.