Letters of Credit Combined with Purchase Order Financing Can Help Seal the Deal to Obtain Needed Working Capital

Letter of Credit paid stampIn today’s global business environment, working capital is often in short supply, as customers usually take longer to pay their invoices than in the past. A lack of working capital can stunt a company’s growth if it does not have the funds to purchase goods and supplies to meet its customers’ orders.

Purchase Order Financing (PO funding) provides the cash that many businesses need to both fill their customers’ orders and expand their business at the same time. In essence, it advances funds to a company’s suppliers against a purchase order from a qualified customer. This is so that the company can deliver the product to its customers on time and with the quality required.

The combination of PO funding and the issuance of a letter of credit, however, can often provide the crucial difference needed to complete a necessary purchase of supplies. This is particularly true in international transactions.

PO funding is especially useful for companies that cannot obtain traditional funding based on their own financial condition or balance sheet. For example, startups, turnarounds, and others whose balance sheets cannot support conventional banking relationships. That’s because PO financing is based on the creditworthiness of the customer, rather than that of the company selling the goods and being funded.

A Letter of Credit Provides Added Assurance of Payment

Purchase order funding is a viable strategy to obtain working capital for both domestic and export/import transactions. For international trade in particular, however, using a letter of credit to complement PO funding can be the essential lubricant to close a transaction that might otherwise not occur.

In global trade today, suppliers want to be extra confident that you are good for payment. While PO financing assures that your supplier will receive payment, often, suppliers wish to an additional guarantee to ensure prompt payment. That is where a letter of credit enters the picture.

Due to the globalization of business and the nature of international transactions, where such factors as distance, differing laws in each country and difficulty in knowing each party personally play an essential role. As a result, the use of letters of credit has become a significant aspect of international trade.

A letter of credit is a document in which a financing firm issues. This assures payment to a supplier of goods or services acquired. It serves as a guarantee to the seller that it will be receiving payment. This is true regardless of whether or not the purchaser ultimately pays for the order. The risk that the buyer will not pay is thus transferred from the seller to the issuer of the letter of credit. The letter of credit also ensures that all the agreed-upon standards and quality of goods are met by the supplier.

Paragon Financial Provides Both PO Funding and Letters of Credit

In addition to providing purchase order financing, Paragon Financial has extensive experience in combining PO funding with letters of credit. The addition of a letter of credit to PO financing can often make the difference. This is whether or not you can get the supplies you need to complete a significant order for a customer.

The combined effectiveness of PO financing and a letter of credit applies across the board to a wide range of industries and transactions, from manufacturing to printing, and from wines & spirits to automotive suppliers.

Check with Paragon when you need PO financing, and your supplier requires a letter of credit to seal the deal.

Get a Funding today with PO Funding combined with Letters of Credit!

Apply Securely, call 888-400-5931 ext 1 or email us.

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