subject: Leveraging Purchase Order Financing for Scrap Metal Dealers [print this page] Trading successfully in scrap metal calls for financial tenacity, this is because scrap metal suppliers need payment upfront. In addition, you must pay for all other related expenses of delivering the scrap metal to your buyer. The buyer however does not pay upfront, most buyers will insist on a credit period of between thirty to sixty days.
Sixty days credit ties down cash and the business cannot sustain itself. Here is where scarp metal business becomes tough to most traders. Handling large orders can literally wipe them out of business.
So where can a scrap metal dealer get cash to fulfill a large purchase order? Banks might be the first stop; the problem with banks however is that they do not understand the intricacies of scraps business. Banks are also not willing to give loans to any business that has not been in existence for more than three years. Moreover, they will insist on having collateral
Scrap metal business requires fast cash, once a trader receives a purchase order they have to move quickly to fulfill the order otherwise they risk loosing it to a competitor. The slow process of securing a bank loan may cost a dealer the purchase order.
The fastest and most convenient way of getting finances is through Purchase order financing. Here the scrap metal dealer simply needs a purchase invoice that a factoring company will use as security to give the required cash or issue a letter of credit.
Here is how it works; the scrap metal trader gets a purchase order, the factoring company pays a deposit or issues a letter of credit to the supplier. The dealer takes possession of scrap metal, and delivers to the customer. The customer pays the dealer who pays back to the factoring company the loan amount plus interest or profits.
Next time you need urgent financing as a scrap metal dealer consider factoring.
Leveraging Purchase Order Financing for Scrap Metal Dealers
By: Pinky Savika
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