Purchase order insurance

[Jim King]

I have a large purchase order from a multibillion US company and do not have the cash to produce it. I have the people, machines, wood , net worth no debt. etc but short on cash. My bank here says that if I got purchasorder insurance from a solid US insurance company gauranteeing that the goods would be paid for when they arrive as per the terms they would advance me the working capital to produce the orders.

Any one ever had "purchase order insurance " ?¿ Any one ever had purchase order insurance
or know where I can get it.?

[John Shuk]

No idea. It seems that a solid US insurance company might be a tough thing to find these days.
That is said somewhat tongue in cheek. I do wish you luck.

[Mike Henderson]

Contact the multibillion US company and tell them you can't produce their products unless you get some cash up front. Not the whole purchase order, but a part of it. If you think about it, they're asking you to trust that they will pay you after you make and ship your product. So asking them for some front end money is not that strange. You might be surprised that they agree. They're going to pay you eventually, so why not some up front.

Mike

[This is not the same as you, but on work I do, I require a 50% up front payment. If I didn't, the client could walk away and I'd be stuck with the goods - designed to his/her order.]

[Prashun Patel]

On large orders, we sometimes offer a discount - say 2% - for cash in advance.

I'm also surprised how many customers are willing to pay a PORTION of the cash upfront - just enough to get you running...

[Jim King]

My proplem is I am dealing with one of the Big Box stores and they have rules that God doesnt argue with. It simply looks like I am out of the Box.

[Jim Becker]

Jim, if I'm not mistaken, you have a US/North American "end" to your business. Whomever is handling the insurance and/or legal side of things for you stateside should be able to investigate this.

[Joe Pelonio]

That's a shame, to lose such a great order. I have at times managed to get large companies that I have worked with for many years advance 50% in advance on a huge order, and they have been willing. Normally I do that on all new orders over a few hundred, but not for regulars. I just explained that I had to purchase materials and they have agreed. In your case it may be harder because just as you cannot prove to the bank that they will eventually pay, they have no guarantee that you will complete the job.

A quick search found several companies that do what you need, just google "purchase order financing."

[Rob Russell]

Jim,

Contact a local commercial insurance agent. They will be in the best position to find the insurance you're looking for.

To the comments about the financial stability of US insurers, the problems insurers are having right now (other than AIG) are in the life/variable annuity part of the business. The property/casualty market is generally strong and well-capitalized. I know. I work for a company whose stock price and earnings have been battered severely because of the life side of the business, even though the P&C part where I work is profitable.

[Frank Trinkle]

A number of years ago, I had a chain of retail computer stores in California. When I first got started, the average price of a single PC with moderate capabilities was about $10,000. I didn't have the capital in hand to buy the components to build out early orders from some companies, but I found a solution....

The big banks wouldn't even talk to me, but having a purchase order in hand, I went to some small, local banks, and voila... the manager of one saw the benefit of providing short-term loans with payback at the time of payment from my customers. This averaged less than 90-days. The small banks are always looking for ways to profit, and this was clearly in their interest.

I did this for about a year... short term loans with very fast paybacks at reasonable interest rates. It allowed me to build the capital to eventually open 5 stores in California, and both the bank and I established a long relationship that benefited both of us. I should also mention that at the time, I had virtually NO credit history.

While I realize that you are in Peru, and this suggestion may be more difficult due to your location... it is still something that I would pursue. Take your purchase order to the managers at some small banks and explain your situation... they may be very open to short-term capital loans... especially now when they are all struggling to find reasonable profit opportunities.

Just my $.02

[Robert McGowen]

What you want to do is quite common. It is called "factoring."
Google "factoring a purchase order" and you will get quite a few hits.

[Jim King]

As with most things internationally the US is a bit backwards compared to it capabilities in most areas. In this case factoring, purchase order insurance, forfaiting or whatever they call it the have rules that virtually exclude a foreign company. In this case I have to have a us warehouse and office , I cannot ship direct to the buyer unless it is cash in advance ??

Tomorrow I go to Lima and will find a way.

[Cliff Rohrabacher]

purchas order insurance Is a strange way to say"
Performance Bond.

Almost any company can sdell it but the question is why would they?
They'd need some assurance from the customer that they were sincere such that they felt the risk worth the potential profit.

Performance bonds are found all over the place: Bail bonds are performance bonds, Actors and artists get 'em taken out on 'em to guarantee against losses of they don't finish the making the movie, Construction contracts often use them to guarantee against losses from failure to complete the project.

It's really a very common insurance species.

On the flip side you might ask the customer for an advance which would both get them committed to the job and cover your back side if they welched.

[Steve Clardy]

Just a caution on some of the ways big companies pay.
Most are 90 day pay.

[Jim Becker]

Just a caution on some of the ways big companies pay.
Most are 90 day pay.

Yes, the trend lately has been for companies to slip from net 30 or 45 to net 60 and some from net 60 to net 90. That's tough for a small supplier relative to cash flow, especially with lines of credit hard to come by, if at all.