By Mike Semanco, President, Hennessey Capital

For many entrepreneurs, landing that large purchase order is just what the doctor ordered.  You worked hard to win the client, outlasted the competition and are in a position to build on your success.  The team celebrates until someone asks, "Do we have the cash to purchase the amount of supplies needed to deliver the project?" Growth can be a major drain on a company's cash and a major reason why we stress the importance of cash forecasting. Although purchase orders are covered in the Uniform Commercial Code as an asset of a business, it is not an asset that is easily financed, unlike accounts receivable, inventory, equipment or real estate.

Purchase order financing is offered by very few finance companies and is usually best suited for distributors.  Manufacturers and service providers are not ideal candidates for PO financing due to the concern of performance risk.  PO financing for distributors allows for the securing of goods by way of a letter of credit (promise to pay once certain stipulations are met), so that the distributor can increase its buying power with suppliers.  In the case of a distributor, they are not responsible for manufacturing the product so performance risk lies with the supplier. PO financing is structured so that the supplier will not receive payment unless they produce the proper product as defined in the PO, which eliminates the issue of performance risk and thus satisfies the PO funding source.

 

PO financing carries more risk to a lender than traditional A/R financing, thus the cost is more than traditional A/R financing.  Due to the increased cost, companies must make sure they have sufficient margin in the order.  PO financing is typically used in conjunction with an A/R line of credit or factoring facility so that once the product is received by the end user, invoices can be financed and the cash can be used to repay the PO funding source.  This opens up the PO finance facility to be used for new orders. 

Purchase order financing is not ideal for every business but in the case of a distribution model where product needs to be purchased and sold to large entities or retailers, it could be a great tool to secure the cash needed for new growth.

 

Don't be fooled by the jobless recovery

 

By Joe DeSantis, Director of Communications, American Soeciety of Employers (ASE) 

 

When they write the history of the Great Recession, that name is likely to stick to it. After all, the hard data tells us that it was the country's worst economic calamity since the Great Depression of the 1930s. But that is not the reason the name will stick; it will stick because the popular imagination has chosen to think of it that way.
 
For employers, when it comes to retaining their key employees in the months ahead, that perception is more important than the hard data. In 2008-2009, many workers considered themselves fortunate if they held onto their jobs. They also perceived that until the economy found its legs again, they had little chance to improve their lot by going somewhere else. Many of them still feel that way; it is a case of perception being reality.

But that perception could be a kind of fool's gold for employers not worried about retaining their key employees in the months ahead. It is because in this recession, as in any recession, not all workers feel that way. The ones with truly marketable skills know they can take themselves elsewhere, recession or not, and that is what they have always done. Employers who ignore that reality run the risk of losing star performers, the people they have been counting on to bring their organizations back to robust good health as the economy improves.
 
The U.S. government's Bureau of Labor Statistics (BLS) maintains data on the proportion of "quits" (i.e. voluntary terminations) to total separations in the job market from month to month. What the data shows over time is that in a healthy economy, voluntary quits usually outnumber layoffs. When the economy turns sour the relationship reverses. That pattern was true during the Great Recession as well; layoffs consistently outnumbered voluntary quits. But the recession ended, technically, around the end of 2009,  and sure enough, in February 2010 the number of voluntary quits began to exceed the number of layoffs each month, and they are continuing to do so-not by much, but that hardly matters. What the numbers are telling us is that, despite the statistically "jobless" recovery, more employees are seeing opportunities out there, and they are packing their bags and moving on. There is no reason to think that in the months ahead that pattern will not continue.