Beyond Approved Invoices: Using a PO to Trigger Financing Jason Busch - January 22, 2015 10:03 AM | Categories: Analysis, Finance, Invoicing, Trade Financing | Tags: L1, Sourcing and Categories While invoice discounting is getting nearly all of the attention today at the intersection of P2P, business networks, supplier networks and trade financing, might a purchase order (PO) actually be a better event trigger? The answer, if you can mitigate risk, is: absolutely. Financing off a PO allows, in theory, a significantly greater term over which to finance (and gets cash into the hands of suppliers more quickly). As my colleague David Gustin notes in a recent white paper, “On-Demand, Event Triggered Finance With Network Models – A Game Changer?,” “an approved PO (which is basically a commercial contract) could be used for financing instead of an approved invoice, but the firm would then have to mitigate ‘execution risk’ to ensure that the order is properly fulfilled.” Of course, this comes with numerous risks. David fleshes out 3 specific risks in the full paper, but the first is order verification. Specifically, he cautions, “Can you verify the order (is it non-cancelable, a forecast) and also evaluate cancelation risk? Purchase orders may be amended multiple times. The changeable nature, lack of guarantee features and control elements like time for shipment make the PO a fluid document.” Yet the challenges of PO financing and risk mitigation are not insurmountable. Heck, in the apparel industry, generations of textile and clothing manufacturers have largely fueled their business off of factoring loans based on PO issuance. To learn more about the challenges and opportunities of PO-based financing (and other triggers beyond approved invoices), you can download David’s recent full report here. We also encourage you to investigate our deep, subscription coverage of trade financing, invoicing discount and P2P on Spend Matters PRO. In addition to Spend Matters PRO research, David and Jason offer workshops, lectures and advisory services to corporations, banks, private funds, consultancies and technology providers that want to learn more about the trade financing ecosystem and its intersections with new technology products and platforms. Contact them directly to learn more: jbusch (at) spendmatters (dot) com or dgustin (at) tradefinancingmatters (dot) com. Related ArticlesInvesting in P2P, Trade Financing and Procurement Tech: Where the Smart Money Is Procurement is from Mars and Finance is from Jupiter: How to Align PlanetsBest Practice Tips For Implementing Dynamic Discounting and Other Trade Financing ProgramsWill Trade Financing Bring About More Change to Banks or ERPs? Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of follow-up comments by email. Notify me of new posts by email.