How Scrap Metal Traders And Dealers Can Leverage Purchase Order Financing

To be a successful scrap metal dealer you must be able to handle large orders – constantly and consistently. You must be able to pay for the scrap metal costs in advance (and at the best prices) and then wait 30 to 60 days until the transaction is settled to get your investment and profit back. However, few scrap metal traders can handle many large orders at a time while waiting 30 to 60 days to get paid. Therein lies the problem.

Many dealers try to go to the bank hoping to get business financing. However, they soon discover that most banks don’t understand the recycled scrap metal business well and don’t have the right solutions for the industry. Furthermore, getting bank financing is especially hard since banks require that you show three years of profitable business history and have sizeable collateral before making a loan.

Either way, banks loans don’t always work well for scrap metal dealers. In this industry, once you find the best scrap metal prices, you must move quickly to seal the deal. A better solution than bank financing is to use purchase order financing.

Purchase order funding provides you with the necessary funds to execute your confirmed POs. It provides you the financing to pay scrap metal suppliers, enabling you to deliver the goods and close the sale. Purchase order financing is easy to use and works as follows:

1. The scrap metal dealer / trader secures a purchase order from a customer

2. The purchase order finance company then pays the scrap metal costs from the supplier yard (usually by placing a deposit or using a letter of credit)

3. The yard delivers the scrap metal to the customer according to the order

4. Once the customer pays for the scrap metal, the transaction is settled

Purchase order financing has a number of advantages over conventional bank financing. First, it’s very easy to obtain. The biggest requirement is that your company have purchase orders form commercially credit worthy customers. And second, it can be set up quickly. Most of the times you can get the financing in days (rather than months). And as opposed to bank financing, most startups will qualify.

Many times, po financing can be used in combination with factoring financing. Combining these two products can allow your business to fully optimize its cash flow, enabling it to grow at an even faster rate.

Although not widely used, these financing tools are quickly being adopted by growth minded scrap metal dealerships and traders. Be sure to consider them as options the next time your company needs financing.

About Commercial Capital / Invoice Factoring Group
Interested in factoring receivables? We can provide scrap metal dealers with affordable purchase order financing and accounts receivable factoring. For more information call (866) 730 1922.

Article Source: http://EzineArticles.com/?expert=Marco_Terry

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Introduction To The Scrap Metal Trade

Introduction To The Scrap Metal Trade
Recycling scrap metal has always been a potential business in which one can make money and even more so now with a huge emphasis on recycling. Millions of tonnes of scrap metal are processed every year, examples being cars, bikes, pots, radiators, appliances, pipes, electrical wires, sinks, ships and many more. This article gives a brief overview of the scrap metal industry helping one get an understanding of what it’s all about.

Scrap metal comes in two types, Ferrous and non Ferrous. Ferrous only includes steel and iron scrap, whereas non ferrous is scrap metal other than iron and steel and includes copper, aluminium, zinc, lead, nickel, titanium, cobalt chromium and precious metals. Ferrous scrap is more readily available than non ferrous and hence ferrous is less expensive than non ferrous.

Scrap metal is also categorised using other criteria, for instance ferrous and non ferrous can be grouped into home scrap or purchased scrap. Home scrap is produced in the foundry or mill and is reused by the foundry or mill. Purchased scrap can be further classified as either industrial (new) scrap which is unwanted scrap created in the manufacturing process like when producing a new car, or obsolete (old scrap) which is worn out scrap like a car that has reached the end of its life. Other examples of obsolete non ferrous scrap include copper pipes, radiators, catalytic converters etc.

Also for instance in ferrous scrap metal you get many grades to classify, for example you have HMS1, HMS2 and further classifying ISRI codes. These basically define the type of scrap in terms of content, size, source and mix.

The price that scrap metal is purchased and sold for is determined by its type, source and any further classification. Additionally depending on supply and demand, the prices can fluctuate reasonably and quite frequently with a short space of time.

The various parties that trade in the purchase and sale of scrap metal are defined as follows.

Scrap processors purchase scrap metal from various sources, for example from builders, plumbers, mechanics, foundries, and other sellers. The scrap processor may deal in ferrous or non ferrous or both. The scrap processor will sort the scrap metal in their scrap yard with the use of cranes, magnets, shredders etc, and then sell the processed scrap metal to foundries, mills, recyclers and other purchasers. Alternatively the scrap processor may recycle the scrap and then sell on the recycled products.

Peddlers collect scrap metal from various sources and sell to the scrap processors. Or they may purchase from scrap processors and move the scrap to other countries. For instance a peddler may source unused cars for the scrap processor, or may collect aluminium cans for the scrap processor to recycle.

As can be seen, to get involved in this business, there are many factors to consider and options to choose.

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