Vendor Guarantees

Benefits of Vendor Guarantees

Benefits of Vendor Guarantees

Vendor guarantees are a product that we offer as an alternative to purchase order financing. You can also refer to this as PO financing. Companies who need capital to purchase goods from their vendor and have it drop shipped directly to their customer usually seek a form of Purchase Order Funding a more costly and complex form of financing. Vendor guarantees are considerably cheaper, quicker, less complicated and can aid in building credit with vendors.

Essentially, the supplier is relying on the credit and guarantee of Paragon Financial for payment of the goods. In a supplier guarantee, the vendor must at least agree to produce the goods initially. After which, we can provide two different guarantees to the vendor:

  • Upon receipt of funds from Paragon, the supplier agrees to ship the goods directly to the end user.
  • Paragon will guarantee the vendor that once the goods have been shipped, and accepted by the end user, that funds generated from the factoring of the invoice will be wired directly to the supplier. The balance between payment of the purchase order and the gross amount of the invoice will then be wired to you.

In both instances, there is a creation one-page tri-party agreement between Paragon, you, and the vendor. We have a lot of experience in negotiating with the vendor. Also, most are happy to have the guarantee in place.

You are in the t-shirt business. Your company receives a very large t-shirt order from a big-box retailer like Wal-Mart. You need to buy the raw goods from your supplier, but the supplier will not ship the goods. Why would they not ship the goods?  Perhaps you are a young startup or it’s the biggest order you have ever placed with them. You simply do not have enough credit to supply all the goods to fulfill the order. They have cold feet and that is when a vendor guarantee comes into play.

A factoring company with excellent credit can leverage your accounts receivables through invoice factoring. A creditworthy factor with the proper experience can work directly with your supplier to guarantee they receive a payment. You land a huge order from Wal-Mart and your vendor gets a cash guarantee. It can be the perfect win-win-win scenario all parties are looking for.

The factor purchases your accounts receivables from the large order and pays your supplier before paying you. They advanced your t-shirt company up to 90% of your invoice amount. You received the remainder, less the factoring companies fee once the company pays the invoice in full.

The supplier is taking a risk if the order is not completed in a timely manner. The supplier will only consider doing this type of transaction if the relationship between all parties is excellent and they are comfortable payment will be on time.

When a company has a large opportunity and has good relationships with their supplier, vendor guarantees can get you the critical working capital you need to grow your business.

For over 25 years, Paragon Financial Group has provided working capital solutions for growing companies throughout the U.S. We 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.

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

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