- Accounting and Payroll Service
- Best Metrics for Key Performance Indicators
- Best Practices for Invoice Factoring
- Cash Flow
- Extending Credit to Customers
- How to Identify a Business Partner
- Increase Cash Flow
- Money Saving Tips
- Purchase Order Financing
- Setting Priorities
- Small Business Decision-Making
- Small Business Lending
- Small Business Management
- Tech Tools for Small Business
- The Need for Optimism
Case Study: Purchase Order Financing
We would like to share a case study that showcases Plus Funding’s ability to help companies succeed and thrive from our factoring services. Plus Funding Group assisted a company that imports high-end women’s shoes.
When PFG began working with this company a year ago, they were making about $200,000 a season with $800,000 annually. The company sold their products on Amazon and some smaller boutiques, and used manufacturing plants in both Spain and China. The annual cost of production was around $120,000.
However, the company needed to pay 30% of their production cost up front in order for their producers to begin work. The other 70% was paid when the goods were ready to be shipped. These conditions meant that the company was required to pay the $120,000 production costs before they were even able to sell the shoes. Without some sort of financing options, this company would be tying up valuable cash in the form of inventory.
PFG made this company more liquid by providing purchase order financing. What PFG did for this company was provide the manufacturer with the 30% up front costs of the goods, and then gave the manufacturer the remaining 70% production costs that were needed to ship the shoes. This allowed the goods to reach the United States where they were then shipped to distribution centers and sold to customers. PFG then collected on the invoices from the customers on the behalf of this company.
Once the goods were shipped out, PFG did the necessary factoring on the company’s invoices and collected the monies from all of the company’s clients. This resulted in a gross profit of $80,000 that was collected, and these funds were sent back to the client company. Initially, the company had $200,000 in purchase order financing before they got started. They also needed the $120,000 in other costs such as production and freight to fulfill their purchase orders.
PFG initially financed the manufacturing costs to the factories, freight, etc. The whole process from purchase order to delivery was 60 days, and the whole production cycle from purchase order to finance was 120 days. In the meantime, the company was able to generate $80,000 (minus PFG’s fees, which were between $10,000 – $20,000) and essentially get their profit without putting down any money from their own profits.
Prior to PFG, this company was only able to handle small orders. After PFG’s help, the company is expected to make between $400,000 to $500,000 in business in the Spring 2014 season alone. Now that they have the financing that they needed, they are able to be more aggressive and go after bigger customers. This has caused a shift in the customer base and will allow this company to service larger clients like Nordstrom and Hautelook.
Net profit for this company has gone from $80,000 to $200,000. PFG still finances the whole production including the freight, with the time cycle remaining the same. This company now knows that they can finance their operation successfully and because of this are now driving growth. The only constraint to their growth will be based on sales and production. Financing should never become a bottleneck, which is why PFG is there to help businesses such as this one grow and thrive.