| Investorwords: "Purchase Order is a written authorization for a supplier to ship products at a specified price, which becomes a legally binding contract once the supplier accepts it. The form will contain all purchasing information such as price, quantity and details of delivery." (credit: investorwords.com) |
PO Finance is short for Purchase Order Finance. It is a financial tool which permits an undercapitalized or fast-growing company to expand its business beyond what a traditional lender can support. The entrepreneur is able to do this primarily because of the strength of a confirmed purchase order from a credit worthy customer rather than the size of the company's balance sheet, or the availability of external collateral.
STAR Finance Success Story:
IMPORTER OF MEDICAL DIAGNOSTIC EQUIPMENT
A US manufacturer of medical diagnostic equipment needed to fill sizeable purchase orders from its local customers. The equipment consisted of a proprietary machine with a computer, a measuring instrument and some specially designed software. Based on firm orders from the client's customers, STAR opened L/C's to the overseas supplier of the machines.
STAR inspected the machines prior to shipment, and paid for them while they were in transit. When the machines arrived in the US, STAR paid the duty and freight, and purchased computers just-in-time to reduce the overall costs to the client. The merchandise was shipped to the warehouse where the client wedded the computer to the machine and added his softwear and a measuring instrument. The product was delivered to the hospitals, and STAR factored the receivables.
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