Purchase Order and Receivable Factoring


Purchase Orders are a formal agreement that a product is going to be bought at a specific price. On occasion, a company may be requested to deliver goods or services that require substantial "up-front" cost before an invoice can be submitted. Sometimes a company may be asked to deliver goods, but may not have sufficient working capital or cash reserves for the raw material or added labor needed to complete the order.

The receiver of the purchase order can sell their respective income stream. The proceeds from this can then be used for equipment purchases, raw materials, or other business expansion and expenses.

Once delivery of the requested material or service is made, that transaction will be followed by a invoice with reference to the purchase order. Now we come into a correlation with accounts receivable. Receivables can be involved in any business, from medical, construction, and manfacturing to name a few. The funding or the purchase of invoices is known in the Cash Flow Industry as Factoring.

Medical Receivables are payments owed to health care providers and manufacturing companies by insurance companies, Medicare, or Medicaid. Note:Typically, this does NOT include payments owed to health care providers by patients.

Medical Receivables are created when a health care provider renders service or a manufacturer provides equipment to a patient and is waiting for reimbursement from an insurance company, HMO, PPO, or government source.

In the medical industry, it is not uncommon for repayment to take from 60 to 120 days. Delays in receiving payment create cash flow problems for physicians and other health care providers. Selling these receivables can help the provider of services or equipment stay current with payroll, taxes, overhead expenses, or other obligations.

In many situations, Receivable Funding is more appropriate than bank financing, because:

It is based only on the accounts receivable. A client's ability to raise cash by Receivables Funding is based on the total accounts receivable, rather than on traditional measures of financial strength and stability.

Provides continuing cash flow without the requirement of periodic payments or interim payoffs. New sales continuously create new power to obtain cash, and the business does not have to deal with renewal of loans or worry about maturity dates.

Gives a business increased access to cash as sales and receivables increase. There is no ceiling beyond which the factor must stop providing cash. The more sales a business makes, the more cash it can draw. The factor does not concentrate on the business debt/equity ratio to provide funds, as banks do.

Offers a dependable, continuing source of cash without the necessity of making separate loan applications.

Avoids the necessity of obtaining funds from venture capitalists, who receive an interest in the business and generally have a say in how the business is run.

Saves the business owner precious time waiting for a loan board to grant or deny his or her loan. Loan boards' decisions are influenced by many considerations, and the outcome is often unpredictable. With factoring, periodic delays and negotiations are eliminated, allowing the business owner time to do what he or she does best - run the business.
                    
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