BY RICHARD EITELBERG, CPA
When factors and purchase
order financiers encounter
one another on a transaction, they must respect one
another. The factor must
not handcuff the purchase
order financier from being
able to follow through and
do their job. The factor
should recognize that the
PF is helping their joint
client build their business,
which can translate into
more opportunity for the
factor. Read on for tips on
how to make this a mutually beneficial relationship.
Business owners are turning to factors
more than ever before.
Purchase order financiers can enable
factors to get more deals done.
This should be a symbiotic relationship
with common goals.
PFs bring merchandise inspections,
predelivery order verifications, security
measures, checks on orders (in case of
failed inspections), and documentation
to the process.
Purchase order financiers can help the
client build its business, which can translate into more opportunity for the factor.
With the historic level of distress
and increasing credit restrictions in
today’s economy, business owners
are turning to factors more than ever
before. A flood of weak, deprived companies are seeking them out. Unfortunately, many factors do not capitalize
on these opportunities, because they
resist bringing in a purchase order
financier (PF). Their reluctance often
stems from their lack of understanding about the relationship they will
have with the PF.
In a number of these enterprises, a
lender probably refused to offer the
borrower any credit line. But if the
factor is limited in how much it can
offer, a potential deal dies because
there is no credit source to fill in the
Introducing a PF into the process
enables that deal to get done. However, the factor must have respect for
the PF’s role in the transaction and
how its service helps the client improve its situation. Hopefully, a client
that has a successful experience will
be a recurring source of business for
both the factor and the PF.
Purchase order financing goes
toward just what it says. It is not
money for business operations. It is
not money for payroll. Money enables
business owners to pay for the goods
or products they order from a factory or plant, which get shipped and
delivered to a retailer or distributor.
Nothing more. This is not a competitive threat for factors, but an enhancement benefit.
Mechanically, here’s how the process
1. The customer submits a purchase
order to client with all documents.
2. The client submits the customer purchase order to the PF for approval,
including all costs associated with
3. The PF will then will make direct
payments to the client’s vendors
so that the merchandise for the
customer PO can be produced.