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S Corporation CPA comments on Purchase Order Financing | Form 1120-S

S Corporation CPA Wilmington NC discusses Purchase Order Financing

Gary Bode CPA: S Corporation CPAs often help with financing options. For a free phone consult call (910) 399-2705.

S Corporation CPAs often facilitate financing for their clients. Purchase order financing is an asset based lending strategy; an alternative to the traditional loan. Generally, asset based financing relies on the value and quality of the collateral, not your S Corporation’s credit rating. Asset based financing became more common during the recession. Other examples of asset based financing include accounts receivable Factoring and Revolver lines of credit.

Purchase Order Financing

The typical scenario is an S Corporation snagging a dream order from that dream customer. Often the S Corporation views it as a growth step up to their next level of business. So there’s a strong  incentive to fulfill the order. But, there’s also a dilemma. You need additional resources to complete the order. Purchase order financing is more of a blend between asset based financing and a traditional loan. The actual blend depends on:

  • The terms of the Purchase Order.
  • The reputation or financial strength of the customer.
  • Your credit rating.
  • S Corporation assets.
  • Your track record.

Hassles with Purchase Order Financing

  • You’re sometimes forced into a secondary finance market. So fees and interest are high.
  • Terms are restrictive.
  • They’ll probably require a lockbox; the customer essentially pays your lender.
  • You sort of get only one chance here, so be sure to forecast your cash flow accurately. Growth is great, but there are pitfalls.
  • Shareholders may have to co-sign.

We’re an S Corporation CPA firm with  a virtual office to accommodate long distance clients. We operate as an S Corporation ourselves. So we try to keep up with all the managerial and tax issues of S Corporations.  Of course, we prepare Form 1120-S. If you don’t have a local S Corporation CPA, or just like what you read, please consider calling us for a free phone consult at (910) 399-2705. Please read any of the hundreds of posts on this website to help evaluate our abilitiy and philosophy.

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