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Financing purchase orders

by joe golfer
8 replies
On Shark Tank, often the product owners have a "potential order from a major retailer." They say they need money from the Sharks partially to fulfill this purchase order.

Outside of Shark Tank, how do most growing companies handle this? If they need $100,000 to fulfill their largest purchase order ever, where do they get the cash? I can't imagine banks finance this? Are there special finance companies?
#financing #orders #purchase
  • Profile picture of the author Jiggz
    Joe, there are factoring companies that do this as long as the purchase order is from a credit worthy company. They will typically finance the amount needed to produce the product and deliver it. Then an invoice will be issued by seller, which again they factor in most cases. Its not cheap, but certainly gets the working capital needed to grow and fulfill orders.

    Factoring is a very old form of transaction...I think it dates back to Persian/Mesopotamian times...old.
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    • Profile picture of the author joe golfer
      Originally Posted by Jiggz View Post

      Joe, there are factoring companies that do this as long as the purchase order is from a credit worthy company. They will typically finance the amount needed to produce the product and deliver it. Then an invoice will be issued by seller, which again they factor in most cases. Its not cheap, but certainly gets the working capital needed to grow and fulfill orders.

      Factoring is a very old form of transaction...I think it dates back to Persian/Mesopotamian times...old.
      That's the word I was looking for. Factoring.

      It seems to me this is one of the hardest parts of growing from "making the product in our garage" to healthy retail presence. If the business flames out, the owners are on the hook for thousands of dollars to the lender and no cash flow to pay it.
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      • Profile picture of the author Aaron Doud
        Originally Posted by joe golfer View Post

        That's the word I was looking for. Factoring.

        It seems to me this is one of the hardest parts of growing from "making the product in our garage" to healthy retail presence. If the business flames out, the owners are on the hook for thousands of dollars to the lender and no cash flow to pay it.
        That is why at least in my opinion that for most products the right play is a licensing deal. Let someone else take over the product and just keep a percentage of sales.
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        Aaron Doud - Sales & Success
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      • Profile picture of the author longrobnc
        Originally Posted by joe golfer View Post

        That's the word I was looking for. Factoring.

        It seems to me this is one of the hardest parts of growing from "making the product in our garage" to healthy retail presence. If the business flames out, the owners are on the hook for thousands of dollars to the lender and no cash flow to pay it.
        When I started my business, I used a factoring company called Riviera Finance. They purchased my invoices and did the collections. I payed 3% of the invoice if the bill was paid -30 days, 31-60 days was 6%, and 9% if it was over 60 days. It helped me build my business while I built a bankroll. The downside is that if a customer doesn't pay a bill it gets charged back to you. If you don't pay, they can legally take your business.

        I never had an issue. They were always flexible. For almost 2 years, I considered them a part of my company.
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  • Profile picture of the author NewParadigm
    It was mostly bank lines of credit to handle that but those have all but disappeared in the last 5 yrs for small/medium sized businesses. Financing receivables costs you 2.5-4% a month.
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  • Profile picture of the author GforceSage
    Sometimes a venture capitalist will offer to help if they believe in the company/product. If a straight loan, then the terms are negotiable. Venture capitalist tend to want a permanent piece of the action. However, in speaking with other small business owners, having to give up 30% of your business is a normal term for the venture capitalist to insist on.
    Many product owners have to hit up friends and family. On Shark Tank, most folks offer up 5 to 20% of their company depending on needed funds. The Sharks usually go for 20 to 50% and/or a royalty.
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  • Profile picture of the author karlkrueger
    In speaking with other small company proprietors, having to give up 30% of your company is a normal term for the venture naturalist to persist on. Many product entrepreneurs have to hit up loved ones.
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    • Profile picture of the author John Regal
      Originally Posted by karlkrueger View Post

      In speaking with other small company proprietors, having to give up 30% of your company is a normal term for the venture naturalist to persist on. Many product entrepreneurs have to hit up loved ones.
      Sometimes you`d need to get support from your family to keep it going. I honestly don`t see much of a better solution for getting your business off the ground
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