One avenue is equipment financing/leasing. Equipment lessors help small and medium size businesses obtain equipment financing and equipment leasing when it is not available to them through their local community bank. P.O. financing always comes with an exit strategy and it is always another lender or the company that did the P.O. financing who can then come in and factor the receivables. If the sourcing is done with a larger distributor there probably won’t be an issue for accounts receivable financing and/or purchase order financing.
The goal for a distributor of wholesale produce is to find a leasing company that can help with all of their financing needs. Some financiers look at companies with good credit while some look at companies with bad credit. Some financiers look strictly at companies with very high revenue (10 million or more). Other financiers focus on small ticket transaction with equipment costs below $100,000. How they source the product will have an impact and what they do with the product after they source it will have an impact. This is the part that the factor or P.O.
Financiers can finance equipment costing as low as 1000.00 and up to 1 million. Businesses should look for competitive lease rates and shop for equipment lines of credit, sale-leasebacks & credit application programs. Take the opportunity to get a lease quote the next time you’re in the market. The only thing I do is to obtain the order from the supermarket and I place the order with my grower and my grower drop ships it over to the supermarket.
Merchant Cash Advance
It is not very typical of wholesale distributors of produce to accept debit or credit from their merchants even though it is an option. However, their merchants need money to buy the produce. Merchants can do merchant cash advances to buy your produce, which will increase your sales. They are better at providing financing when there is a single customer and a single supplier.
Factoring/Accounts Receivable Financing & Purchase Order Financing
One thing is certain when it comes to factoring or purchase order financing for wholesale distributors of produce: The simpler the transaction is the better because PACA comes into play. Each individual deal is looked at on a case-by-case basis. The distributor has provided enough value-add or altered the product enough where PACA does not necessarily apply. I am not going to take it into my warehouse and I am not going to do anything to it like wash it or package it.
Is PACA a Problem? Answer: The process has to be unraveled to the grower.
Factors and P.O. financers do not lend on inventory. Let’s assume that a distributor of produce is selling to a couple local supermarkets. The accounts receivable usually turns very quickly because produce is a perishable item. However, it depends on where the produce distributor is actually sourcing. bulking it and then selling it will be enough for the factor or P.O. financer to look at favorably.
An even better scenario is when a value-add is involved. Example: Somebody is buying green, red and yellow bell peppers from a variety of growers. They’re packaging these items up and then selling them as packaged items. Sometimes that value added process of packaging it,
Another example might be a distributor of produce taking the product and cutting it up and then packaging it and then distributing it. There could be potential here because the distributor could be selling the product to large supermarket chains – so in other words the debtors could very well be very good.
What can be done under a purchase order program?
Let’s say a produce distributor has a bunch of orders and sometimes there are problems financing the product. The P.O. Financer will want someone who has a big order (at least $50,000.00 or more) from a major supermarket. The P.O. financer will want to hear something like this from the produce distributor: ” I buy all the product I need from one grower all at once that I can have hauled over to the supermarket and I don’t ever touch the product.