Purchase Order Finance and Invoice Factoring Line
Client: A Home Shopping Network (HSN) chef and his gourmet frozen food company
Industry: Food and Entertainment
Situation: As one of HSN’s popular hosts, the Chef was offered an exclusive, one-hour cooking show during which he sold his gourmet frozen foods and cookbook. Orders poured in and he experienced fast, exponential growth. What’s more, he expects business to increase ten-fold over the next five years. But HSN, like other televised home shopping networks, requires its sellers to have inventory on hand to quickly fill customer orders, so the Chef needed working capital to produce the frozen foods and cookbook. Additionally, it took a long time to process payment from HSN orders. A broker shopped the deal to several factoring companies, which turned him down due to the complexity of the deal. Paragon Financial was not afraid to say yes and tackled the extra work head-on.
The Challenges: When the Chef makes a sale on HSN it’s considered on consignment because some product may be returned. HSN then deducts returns on his Company’s invoices, so the amount invoiced was not the actual amount paid. Most factors won’t buy invoices in situations where liberal right-of-return policies exist, but Paragon’s underwriting experts went to bat and found a way to get the deal done in a way that was comfortable for everyone. We had to find a method to calculate the probable payment from HSN. We developed a formula based on orders logged into HSN’s online EDI system and shipping receipts from BHK, factoring in a dilution percentage derived from the past history of returns.
A second challenge was finding a way to work with many small invoices that are typical in retail and that make data entry very labor intensive. We found a way to streamline the work process by downloading HSN invoices from their online EDI system into an Excel spreadsheet, then uploading them to our software, saving our client time and money.
The Deal: A $500,000 invoice factoring line of credit.
Result: With factoring in place, the Chef can take his gourmet food business as far, and grow as fast, as he wants.
About Paragon: For over 24 years, Paragon Financial Group has provided working capital solutions for growing companies throughout the U.S. They serve small to large-size companies across a wide variety of industries through accounts receivable, invoice factoring, and purchase order financing up to $3 million per month in volume. Paragon is a leading source of receivables financing, government contract financing, payroll funding, and purchase order financing.