What does order financing cost

Routes to finance

Order financing is a financing option for resellers or distributors of hardware products who lack the funds to pay manufacturers. In addition, companies that use order financing are those that are not considered sufficiently creditworthy by manufacturers. Otherwise, they would be entitled to pay their bills after receiving the shipment (and possibly after receiving payment from their own customers).

What is an order?

This represents a firm commitment by a customer to buy goods from a reseller or dealer. Based on such orders, a purchase finance company pays the manufacturer to make and ship the goods.

Once payment is received from the reseller or dealer who placed orders from their customers, the finance company for the order will be refunded the cost and fee. Order financing is a variation on factoring that has been increasing significantly since the 1990s.

Financing terms for the order:

A typical financing transaction for a purchase order earns interest at an interest rate of more than 40% per year. Rates of 3.5% for the first month and 1.25% for every 10 days thereafter are common terms, and 60 days is the common duration of such loans.

Order financing prevalence:

There appear to be only a handful of independent purchase finance firms of any size currently operating.

Exact statistics are not available in this lending niche. The customer base of these companies consists of small businesses that are struggling to obtain bank credit, even from banks with which they have longstanding relationships.

Some banks do order finance, but usually only for existing customers.

Wells Fargo appears to be the only major bank with its own finance department.