Purchase Order Funding for Tenders

Getting a contract for a big order can be a great deal for your business. You will get a large amount of money for the order which will help your business grow. In South Africa, big orders from the government are called tenders. If you don’t have enough money to fulfil the tender, you will have to apply for purchase order funding or tender financing.

Purchase order funding is a type of funding instrument that helps businesses fulfil large orders. Purchase order funding helps businesses fulfil their large orders although they are facing temporary cash flow issues.

For small businesses and entrepreneurs finding the capital to complete larger orders can be quite challenging. Some don’t get funding because they have no assets to attach for funding and some it’s because the contractor is not verified by some lenders.

This article will help you get the purchase order funding you need for your business.

Advantages and Disadvantages of Purchase Order Funding

Purchase order funding can (sometimes) be the difference between you fulfilling a large order and not being able to.

Advantages of Purchase Order Funding

The benefits of this funding instrument are many. Some of the benefits of purchase order funding include:

• Allows you to secure the materials needed for your order.
• Allows you to pay for any additional labour needed for your order.
• Gives a significant boost to your company’s cash flow.
• The funding can give you a competitive advantage over your competitors. It allows you to fulfil larger orders than your other competitors.
• By getting purchase order funding and fulfilling your orders, you will build trust with your clients and potential clients.

Purchase order funding is great for businesses especially those who are too small to fulfil larger orders. However, there are also some downsides to purchase order funding.

Disadvantages of Purchase Order Funding

Some of the disadvantages of purchase order funding include:

• Although purchase order funding doesn’t typically have interest rates, most lenders charge upfront fees. Fees vary depending on the lender and the size of the order.
• In some cases, you have to sell your client’s invoices to get purchase order funding. This can create distrust between you and your client.
• Purchase order funding is not a long-term solution and will not be suitable for any long-term financing requirements.
• Not all businesses will get purchase order funding, especially start-ups and those with bad credit.

Before you apply for purchase order funding, consider the above pros and cons. If there are more pros for you, then apply but if there are more cons then you might need to think a little more before applying.

How To Qualify for Purchase Order Funding

There are a few things your business will need to have before you can qualify for purchase order funding. Some of the requirements for purchase order funding include:

• Your business needs to have a tight cash flow.
• Your business needs to be a distributor, outsourcer, reseller or wholesaler.
• You must have a trading history of at least one year (12 months).
• Your business’ revenue must be at least over R500k.
• The creditworthiness of your customer (issuer of the contract) must be good.
• The delivery date of the order must be reasonable (typically within 60 days).
• Most lenders require that the supplier (where you get the materials for the order) must be VAT registered.
• Your gross profit margin must be above a certain percentage of the purchase order.

These are just the requirements you typically have to meet to qualify for purchase order funding. If there are some that you do not meet, you need to fix them before you apply for funding.

Apply for Purchase Order Funding

If you have gotten approved for a tender, you need to apply for funding immediately to ensure you meet the delivery deadline. Below are a few organisations that offer purchase order funding.

National Empowerment Fund (NEF)

The NEF has a funding programme for tender financing called procurement finance. The funding product is aimed at assisting black-owned small to medium-sized enterprises get funding for tenders or contracts.

Some key features of the procurement finance product include:

• NEF funding is limited to R10 million.
• The business applying must have active participation by black individuals.
• Minimum black ownership must be 50,1%.
• Funding instruments include term loans, bridging finance, asset finance, revolving facilities and debt finance.
• NEF awards procurement financing to contracts awarded by reputable entities.
• Funding is not granted to subcontracts awarded by agents and entities with a weak financial position and lacking track record.
• The contract must be commercially viable and generate sufficient profits and cash flow for repayment purposes.

To apply for the NEF’s procurement finance product, download the application form. You can send your application to applications@nefcorp.co.za.

Kenote Finance

Kenote Finance offers tender financing to businesses with orders from a government institution, state-owned enterprise or trusted private entity. Kenote Finance provides tender financing from R 500 000 to R 5 million.

Kenote’s repayment terms range from 30 to 60 days. The application process is done online, or you can send it in via e-mail to admin@kenotefin.co.za. To apply, you need to provide a valid purchase order, request or quote and supplier quotations.

Once you have applied, Kenote Finance will review your application and respond within 24-48 hours.

Standard Bank

Standard Bank offers purchase order funding up to R 1,5 million per valid purchase order. To qualify for purchase order funding from Standard Bank you need to meet the following criteria:

• Your company must be 51% or more black-owned.
• Your turnover must not exceed R50 million.
• The director(s) of your company must be South African and fully involved in the daily operations of the business.
• Your company must have a valid purchase order from one of the three stipulated provincial governments.
• The funding must be for the supply of goods.

To apply for funding from Standard Bank, e-mail your purchase order and the signed POPIA consent form to enterprisedevelopment@standardbank.co.za or speak to the Business Manager at your nearest Standard Bank branch.

The above purchase order funding solutions are just two of the ones available. There are many others such as The People’s Fund that provide purchase order funding specifically for small businesses.