Purchase Order Financing-Easy Money explores the history of
money, the conversion of gold to paper money and the similarities between the
invention of bartering and purchase order financing.
According to Dictionary.com, the word easy has about 17
definitions. The most relevant definitions are:
“1. Not hard or difficult; 6. Not burdensome or oppressive;
7. Not difficult to influence or overcome; 11. Not tight or constricting; 14.
In commerce it means not difficult to obtain.” As used in this article, easy
money is meant to convey the idea that, notwithstanding these very difficult
times in 2008 where money is tight and difficult to obtain, under certain
circumstances a business that sells products to other businesses can easily
obtain money to grow exponentially.
On our planet earth, man did not invent money for thousands
of years. As civilizations and nation
states developed, man learned how to trade and barter for goods that they
needed. Money was invented to solve the problems of bartering. There basically
was a timing issue between, for instance, farmers having a crop to trade for
what they wanted when they needed it. The invention and acceptance of gold and
silver coins helped to overcome this timing mismatch. The farmer could sell
crops for gold and trade gold, when needed, for the other things they required.
Paper money was invented for many reasons, not the least of
which is to avoid the inconvenience of carrying around a large amount of gold
or silver. Paper money is easier to hide. Until the early 1900’s in the United
States paper money could actually be
redeemed for gold. During the Great Depression, President Roosevelt in 1933
passed laws outlawing the ownership of more that $100 of gold by individuals.
By the turn of the century, the U.S.
government discovered easy money. No longer restricted by the need for physical
gold reserves, the government printing presses churned out however much money
as they needed; and the politicians invented schemes such as the sale of
government bonds, government loans of various kinds, and control of the money
supply through twelve regional Federal Reserve Banks to manage the nation’s
economy and money supply.
Our government’s easy money in fact is causing every
American a very steep price. As the world economy realizes our money has less
worth, we are charged more for imports such as gas, clothes, and food; if we
travel abroad, in Europe for instance, we find that it
takes about one and a half U.S. dollars to purchase a single Euro, the currency
of Europe. In effect, European hotels, restaurants,
goods and services cost fifty percent more for Americans because of the
weakness in our dollar. Ironically, U.S.
musicians make more money in Europe than they can make
in America because
it costs less to pay them “in dollars”.
In spite of this economic situation, many U.S.
businesses are innovative, creative and ready to grow at a very rapid pace.
Purchase Order Financing can be the easy money solution to rapid growth
requirements.
Why does it work? Purchase order financing solves the timing
problem to pay a manufacturer for goods before the buyer pays the seller for
the product just like paper money and gold solved the barter timing mismatch problem.
One real world example is the case of a company that developed popular products
for dogs and cats. Most of their customers were small stores. One day they
received a huge order from a big box store that would virtually double their
business on a monthly basis. The business did not have the cash to fulfill the
order. Purchase order financing provided the solution to their cash flow
shortage to pay for the manufacture of the products and get the goods shipped
to the big box customer.
How does it work? A letter of credit is issued to the manufacturer
to guarantee payment. The costs of goods are paid to the manufacturer as soon
as the goods are delivered, in the example above, to the big box store. An
account receivable financing arrangement is created to pay for the purchase
order and letter of credit side of the transaction. When the buyer pays the
accounts receivable, the lender, generally a finance company or bank
subsidiary, is paid pursuant to the contract and the profits are rebated to the
seller.
Why is it easy money? Because the credit of the seller is
not the main criteria to secure the financing; the credit of the buyer is used
to support the financing. Nevertheless, good character and experience are
important to lenders. During the due diligence process lenders need to determine
that no prior UCC-1 liens exist with respect to the company. If there are
serious credit issues such as bankruptcy, the approval of a bankruptcy court
for the debtor in possession would be required. These types of situations would
not typically be approved by a Bank, but the financing is still relatively easy
to obtain considering the circumstances. And it is available if virtually
unlimited amounts of capital. As the business grows so to will the finance
facility grow so long as the purchase orders are from solid, creditworthy entities.
In 1959 Barry Gordy, the founder of Motown Records, and
Janie Bradford wrote a song called “Money” (That’s What I Want). The song was
the first big hit for the record label. It was covered by the Beatles in 1963.
Everyone wants easy money. Here are the lyrics:
The best things in life are free
But you can keep 'em for the birds and bees
Now give me money (that's what I want)
That's what I want (that's what I want)
That's what I want (that's what I want), yeah
That's what I want
Your lovin' gives me a thrill
But your lovin' don't pay my bills
Now give me money (that's what I want)
That's what I want (that's what I want)
That's what I want (that's what I want), yeah
That's what I want
Money don't get everything, it's true
What it don't get, I can't use
Now give me money (that's what I want)
That's what I want (that's what I want)
That's what I want (that's what I want), yeah
That's what I want
Well, now give me
money (that's what I want)
A lot of money (that's what I want)
Whoa, yeah, you owe me money (that's what I want)
Oh, now give me money (that's what I want)
That's what I want (that's what I want), yeah
That's what I want.
The bottom line: Purchase Order Financing is easy money
compared to traditional bank financing. Similar to the government printing
presses for paper money, purchase order financing combined with accounts
receivable financing, or factoring, can be a source of virtually unlimited cash
for your business. Is that what you want?
Copyright © 2008 Gregg Financial Services
www.greggfinancialservices.com
Mr. Elberg is a licensed attorney and licensed real estate
broker. Gregg Financial Services is a full service brokerage for commercial
finance companies and banks that fund B2B businesses. We work with all industries and can arrange financing transactions
throughout the US and Canada, Mexico, Australia, India and several areas of Europe including the UK, Ireland, France, and Poland. Mr. Elberg
arranges funding from $25,000 to $50 million per month at competitive pricing,
and works to reduce your financing costs as your company grows. For more
information about GFS, please call 888 482 9221 or visit our website: http://www.greggfinancialservices.com
Mr. Gregg Elberg is a licensed attorney and licensed real estate broker. He specializes in many forms of commercial finance as a commercial finance broker for B2B business and commercial real estate. For more information about GFS, please visit our website: 
