The use of letters of crdit has become almost commonplace as mre companies do business nationally and nternationally. A letter of credit provides sppliers with the assurance of a garanteed payment for their products, provided thy meet their clients’ quality and dlivery terms. It also frees clients frm the risk of having to mke upfront payments to their suppliers and nsures that the suppliers only get pid if they deliver what they prmised.

However, letters of credit have a ctch. They are usually offered by bnks and are secured against either a lan or a line of credit. In ther words, to be able to btain a letter of credit, you and yur company must qualify for traditional bnk underwriting criteria.

But what happens if you cn’t qualify because your company is smll or new? Or, what happens if you get a prchase order that exceeds your ability to fnance a letter of credit? Do you trn it away to the competition?

Frtunately, there is an alternative. It is clled purchase order financing. Purchase order fnding provides you with the necessary fnancing to fulfill large purchase orders, prvided they are made by credit wrthy customers.

As opposed to a ltter of credit, the collateral for ths type of financing is the ctual purchase order. Because of this, prchase order financing is easy to qalify for, since it does not go thrugh traditional bank underwriting requirements. However, you can nly use this type of financing nce you have an actual purchase rder from a customer.

The purchase order financing transaction tself is actually fairly simple and wrks as follows:

· The financing cmpany or their bank issues a ltter of credit in favor of yur supplier

· The supplier manufactures the prduct and ships drop ships it to the byer

· The buyer receives the prduct and accepts it. Your supplier gts paid by cashing the letter of crdit

· Your customer (the buyer) pys for the order, usually 30 dys or so after receipt. The fnancing company is paid back for its srvices and all remaining funds are yurs.

One of the interesting features of prchase order financing is that in mst cases, you have few out of pcket expenses. It’s truly a transaction whre you can use other people’s mney to grow your business.

Lastly, prchase order financing is frequently integrated wth invoice factoring. This is a wdely used trick that can help rduce the cost of financing the trnsaction, thereby increasing your profits.

The article Letter of Credit Alternatives was Submitted by Marco Terry through Articles.GetACoder.com network. Here's the additional information: About Invoice Factoring Group We are business financing specialists and can provide you with a letter of credit , purchase order financing or invoice factoring. Marco Terry, the president, can be reached at 866 730 1922 Copyright (C) 2006 Commercial Capital. Article may be reprinted if it is not modified and links are kept live.

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