HomeFINANCEThe Ultimate Guide to LPO Fundings in Kenya

The Ultimate Guide to LPO Fundings in Kenya

When you attend the mentioning of the word Local Purchase Order (LPO), what comes to mind is the excitement of a new enterprise deal or tender that has gone through.

Winning a business tender or contract is one of the most exciting things any business individual wants, but after that, what next.
This report will take you through one of the steps taken after succeeding a tender, LPO and LPO financing.

What is an LPO?

A Local Purchase Order (LPO) is a copy that the buyer sends or gives to the supplier to permit shipment of goods and products.
The document includes the precise quantity and prices of the products or services generated.

What is LPO Financing?

LPO Financing is a funding resolution for businesses that lack the cash flow to access the inventory to meet customer orders.

In this case, the supplier utilizes the Financing company, also known as a purchase order funding company that pays the supplier to manufacture the goods and deliver them to the customer.

How does LPO Financing work?

LPO Financing is equivalent to taking a loan from a lender to fulfill your customer’s requirements.
As a supplier, moments you may not be in a standing to fulfill a customer’s buy order due to a financial issue.
The Purchasing Order financing will deliver you funds to complete the task in advancement. However, the money is sent to your supplier’s account.
The supplier then delivers the interests to your client, and the client pays the supplier instantly. The supplier then deducts their fees and pays you the remaining amount.
A buy order financing company, just like any other lender, makes money by charging you a specific percentage of the amount that they progress to your supplier.
The great news is you do not require collateral to secure the money funded by the LPO Financing.

How to apply for an LPO Financing

Receive a Local Acquisition Order
Once your client has identified the goods and products to purchase from you, they will then submit the LPO with specific items’ quantity and prices for delivery.
The LPO will then specify whether you are in a position to fulfill the client’s needs.

Your supplier will then provide you the actual cost of the items to decide whether to devote for a Purchasing Order Financing.

Applying for a Purchase order financing

If you cannot meet your client’s order, this is where you activate applying for purchase order financing.
First, you recognize a lender that could be a financial organization like a bank or microfinance, then devote for the Purchase order financing.
Once thriving, the lender will give you the required amount relying on your qualification.
Your Supplier Gets Paid.
The purchase order funding company pays your supplier. If you didn’t qualify for 100% buy order financing, then you’ll have to make up any shortfall by paying the supplier the distinction on your own. The supplier can now do the work required to fulfill your customer’s purchase order.

Delivery of goods

Once the Buy order financing has paid the supplier, he will then deliver the goods to the customer.
Later on, the supplier will inform you of the delivery. You will then be directed to send an invoice to facilitate payment to the Client.

Payment

Once the client accepts the invoice, they will pay the supplier instantly. If the customer pays the supplier on time, the faster you’ll get your cut of the earnings.
The Purchase Order Financing Company pays you
Once the client delivers the Financing company, they will subtract their purchase order fee, then dispatch you the remaining amount.

Places to get LPO Financing

Here are some of the sites to access LPO Financing

1. Invoice Factoring

This is a financial transaction where small businesses market their accounts invoices to a third party for instantaneous cash.
In this case, if your business accomplishes not have enough cash flow to get the goods and products for the clients, they can always consider invoice factoring to achieve what the client wants.

2. Banks

Most banks can fund the LPOs any amount depending on the capability and the money required.
However, some provisions may be needed before an LPO financing is done.
Pro-forma invoice or citation of items of purchase from the supplier
Valid business registration and access documents
Valuation report where usable
List of past agreements completed – dates, amounts
Debtor/creditor duly aged research
Copy of submitted collateral for borrowings exceeding Kshs. 1,000,000

3. Private Investors

This may possess successful business people or even Shylocks. This may, nevertheless, attract a higher interest rate considering these are individuals concerned.

4. Microfinance institutions

These comprise microfinance like Kenya Women Funds Trust, Saccos, Indo Africa, to cite a few.

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