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P.O. Financing – A Tool for Explosive Growth

The phone rings with the call for which you’ve been hoping. You’ve just landed that big sales order that will catapult you to the next level. Deliver the goods on schedule and your customer has told you they will commit to volumes that will significantly increase your revenues and profits for the next twelve months and beyond.

Just before you pop open the bubbly, you realize that you don’t have the cash to buy the raw materials, hire the extra needed workers or pay for the shipping of sub-assemblies. You’ve exhausted your own capital base. Your bank has reached its limits on how much it will lend you. Finding another bank loan might take weeks. Finding an equity partner will likely take even longer and you’ll also have to give them a piece of your company.

Your dreams of success and glory fade as you now visualize a missed immediate opportunity and lost future sales. Of equal if not greater concern are the potential negative ramifications once other customers or your competitors find out you have reached your limits!

Where can you get the cash?

Purchase order financing can be the right tool for your company to take advantage of a variety of sales opportunities in situations resulting from high growth to seasonal increases in business. Plus, it’s not just for growth companies as it is also available for startups and even turnaround candidates.

Companies from a wide variety of both manufacturing and services industries (with the exception of the construction industry) have utilized purchase order financing for both finished goods and non finished goods. This tool for explosive growth can be used to meet your sales goals in purely domestic as well as import and export situations.

If you have gross margins of at least 18 percent on the sale of your product, purchase order financing can enable you to drive your sales skyward. Like any financing, the cost of utilizing purchase order financing can vary. As a rule of thumb, the purchase order financier will charge a transaction fee in the range of 4 to 7 percent of the gross amount funded. The fees may be higher if the amount of time to deliver the product or service exceeds 30 days. The financier will fund a maximum of 100 percent of the costs to produce your product or service which can include deposits, raw materials, components, sub-assemblies, overhead, labor costs, shipping charges and letters of credit.

Upon completion of the product and shipment to your customer, you’ll be expected to re-pay the purchase order financier. This is often accomplished by taking the receivable generated upon shipment of the goods and financing it with a factor or other lender (possibly your existing bank). A factoring or other financing fee may also apply adding another 3 to 6 percent to your total cost of this financing to complete this sale. Advance rates on the receivable financing can approach 85 percent of the invoice amount allowing you to fully repay the purchase order financing.

It’s all about the collateral

Each purchase order financier will have its own documentation requirements with the purpose of determining if you have a verifiable, non-cancelable order for your product with a creditworthy customer. Also, if your current lender has a blanket lien on your assets, the purchase order financier will ask for a release on the assets associated with the financing transaction.

Why Early-Stage Startup Companies Should Hire a Lawyer

Many startup companies believe that they do not need a lawyer to help them with their business dealings. In the early stages, this may be true. However, as time goes on and your company grows, you will find yourself in situations where it is necessary to hire a business lawyer and begin to understand all the many benefits that come with hiring a lawyer for your legal needs.

The most straightforward approach to avoid any future legal issues is to employ a startup lawyer who is well-versed in your state’s company regulations and best practices. In addition, working with an attorney can help you better understand small company law. So, how can a startup lawyer help you in ensuring that your company’s launch runs smoothly?

They Know What’s Best for You

Lawyers that have experience with startups usually have worked in prestigious law firms, and as general counsel for significant corporations.

Their strategy creates more efficient, responsive, and, ultimately, more successful solutions – relies heavily on this high degree of broad legal and commercial knowledge.

They prioritize learning about a clients’ businesses and interests and obtaining the necessary outcomes as quickly as feasible.

Also, they provide an insider’s viewpoint and an intelligent methodology to produce agile, creative solutions for their clients, based on their many years of expertise as attorneys and experience dealing with corporations.

They Contribute to the Increase in the Value of Your Business

Startup attorneys help represent a wide range of entrepreneurs, operating companies, venture capital firms, and financiers in the education, fashion, finance, health care, internet, social media, technology, real estate, and television sectors.

They specialize in mergers and acquisitions as well as working with companies that have newly entered a market. They also can manage real estate, securities offerings, and SEC compliance, technology transactions, financing, employment, entertainment and media, and commercial contracts, among other things.

Focusing on success must include delivering the highest levels of representation in resolving the legal and business difficulties confronting clients now, tomorrow, and in the future, based on an unwavering dedication to the firm’s fundamental principles of quality, responsiveness, and business-centric service.

Wrapping Up

All in all, introducing a startup business can be overwhelming. You’re already charged with a host of responsibilities in which you’re untrained as a business owner. Legal problems are notoriously difficult to solve, and interpreting “legalese” is sometimes required. Experienced business lawyers know these complexities and can help you navigate them to avoid stumbling blocks.

Although many company owners wait until the last minute to deal with legal issues, they would benefit or profit greatly from hiring an experienced startup lawyer even before they begin. Reputable startup lawyers can give essential legal guidance, assist entrepreneurs in avoiding legal hazards, and improve their prospects of becoming a successful company.

Think Twice Before Getting Financial Advice From Your Bank

This startling figure comes from a recent review of the financial advice offered from the big four banks by the Australian Securities and Investment Commission (ASIC).

Even more startling: 10% of advice was found to leave investors in an even worse financial position.

Through a “vertically integrated business model”, Commonwealth Bank, National Australia Bank, Westpac, ANZ and AMP offer ‘in house’ financial advice, and collectively, control more than half of Australia’s financial planners.

It’s no surprise ASIC’s review found advisers at these banks favoured financial products that connected to their parent company, with 68% of client’s funds invested in ‘in house’ products as oppose to external products that may have been on the firms list.

Why the banks integrated financial advice model is flawed

It’s hard to believe the banks can keep a straight face and say they can abide by the duty for advisers to act absolutely in the best interests of a client.

Under the integrated financial advice model, there are layers of different fees including adviser fees, platform fees and investment management fees adding up to 2.5-3.5%

The typical breakdown of fees is usually as follows: an adviser charge of 0.8% to 1.1%, a platform fee of between 0.4% and 0.8%, and a managed fund fee of between 0.7% and 2.1%. These fees are not only opaque, but are sufficiently high to limit the ability of the client to quickly earn real rates of return.

Layers of fees placed into the business model used by the banks means there is not necessarily an incentive for the financial advice arm to make a profit, because the profits can be made in the upstream parts of the supply chain through the banks promoting their own products.

This business model, however, is flawed, and cannot survive in a world where people are demanding greater accountability for their investments, increased transparency in relation to fees and increased control over their investments.

It is noteworthy that the truly independent financial advisory firms in Australia that offer separately managed accounts have done everything in their power to avoid using managed funds and keep fee’s competitive.

The banks have refused to admit their integrated approach to advice is fatally flawed. When the Australian Financial Review approached the Financial Services Council (FSC), a peak body that represents the ‘for-profit’ wealth managers, for a defence if the layered fee arrangements, a spokesman said no generalisations could be made.

There are fundamental flaws in the advice model, and it will be interesting to see what the upcoming royal commission into banking will do to change some of the contentious issues surround integrated financial advice.

Many financial commentators are calling for a separation of financial advice attached to banks, with obvious bias and failure to meet the best interests of clients becoming more apparent.

Chris Brycki, CEO of Stockspot, says “investors should receive fair and unbiased financial advice from experts who will act in the best interests of their client. What Australians currently get is product pushing from salespeople who are paid by the banks.”

Brycki is calling for structural reform to fix the problems caused by the dominant market power of the banks to ensure that consumers are protected, advisers are better educated and incentives are aligned.

Stockspot’s annual research into high-fee-charging funds shows thousands of customers of banks are being recommended bank aligned investment products despite the potential of more appropriate alternatives being available.