You have just received a purchase order worth R1 million.
It is a big deal. A new opportunity. Maybe even the largest order your business has received to date.
But before you start planning what this deal could mean for your business, there is one question you need to ask:
How much money are you actually going to make?
Because a R1 million purchase order does not mean R1 million in profit. And a big PO does not always mean a good deal.
The Number on the PO Is Only the Starting Point
Let’s break it down.
Your business receives a purchase order worth R1 million. Your supplier quotes R750,000 for the goods.
That leaves R250,000. Looking good, right?
Now add R50,000 for transport and delivery. Another R20,000 for additional deal-related expenses. You are now sitting with R180,000.
And we have not considered funding costs, supplier price changes or any unexpected expenses that may come up during delivery.
Suddenly, that R1 million deal looks very different.
This is your margin: the space between what it costs to complete the order and what the end client will pay you.
And when it comes to purchase order funding, that margin matters.
Why Can a Valid Purchase Order Still Be Difficult to Fund?
This is something many SMMEs do not expect.
You can have a real purchase order from a legitimate organisation and still find that the deal is not financially feasible.
The problem may not be the value of your purchase order.
The margin may simply be insufficient.
Purchase order funding is not assessed on the PO value alone. The full deal needs to make financial sense.
The cost of the goods, logistics, expected payment timeline and funding costs all need to fit within the available margin while still leaving room for your business.
A R5 million deal with an extremely narrow margin can be more difficult to structure than a smaller deal with a healthy margin.
Bigger does not automatically mean better.
Are You Calculating the Full Cost of Delivery?
Most businesses start with the supplier quote.
That makes sense. But it is also where many calculations stop.
There may be several other costs hiding between your supplier and successful delivery. Think about:
- Transport and delivery
- Fuel
- Storage
- Packaging
- Insurance
- Loading and offloading
- Labour directly linked to the order
- Supplier price increases
- Funding costs
- Unexpected delivery expenses
A few thousand rand here and there may not seem significant when you are looking at a million-rand purchase order.
But those costs add up quickly.
Before accepting a deal, calculate what it will cost to get the goods from the supplier all the way to the end client.
That is the number that matters.
The Cheapest Supplier Could Cost You More
You find two suppliers. Supplier A is cheaper.
Supplier B costs slightly more but has stock available, a proven track record and can deliver within the required timeframe.
The cheapest quote may look better on your spreadsheet. Until the supplier delivers late.
Or the wrong product arrives.
Or they suddenly cannot supply the full quantity.
Your name is on the purchase order. The end client expects your business to deliver. A supplier problem can quickly become your problem.
When choosing a supplier, look beyond the price.
Can they supply the full quantity? Can they meet the deadline? Is the quote still valid? Have you verified the product specifications?
Protecting your margin is important. Protecting the deal is just as important.
“30 Days” Does Not Always Start When You Think It Does
Your purchase order says payment is due within 30 days. Great.
But 30 days from when?
The payment period may only begin once delivery is complete and the correct invoice and supporting documents have been submitted and accepted.
An incorrect invoice, missing delivery note or administrative delay can affect when that payment process starts.
If funding costs accrue over the funding period, additional delays can also place pressure on your available margin.
Understanding the end client’s invoicing and payment process before you deliver can save you a lot of frustration later.
The Price You Quoted Six Months Ago May Not Be the Price You Pay Today
There can be a significant gap between submitting a quote or tender and actually being awarded the purchase order.
In some cases, six months or more may have passed. The problem?
Your supplier’s price may have changed.
An item that cost R10,000 when you originally submitted your pricing could now cost R11,000 by the time the purchase order is awarded.
If your selling price has already been locked into the PO, that R1,000 increase comes directly out of your margin.
Now imagine that increase across multiple items or a large quantity of stock.
A deal that looked profitable six months ago may look completely different today.
Before accepting or committing to a purchase order, go back to your supplier and confirm that the original quote and pricing are still valid. If the quote has expired, request an updated quote and recalculate the deal using the current supplier costs.
Do not assume the price you received when you submitted the tender is still the price you will pay when it is time to deliver.
Before You Accept the PO, Do the Maths
Before committing to your next purchase order, ask yourself:
- What is the full value of the PO?
- Are my supplier quotes and prices still valid?
- Have any supplier prices increased since I originally quoted?
- What will the goods or services actually cost at today’s prices?
- What are my transport and logistics costs?
- Are there any other costs directly linked to delivery?
- How long could I realistically wait for payment?
- After all of that, is there still enough margin in the deal?
Do not accept a purchase order simply because the number at the top looks impressive.
A big PO can create a big opportunity.
It can also create a big problem if the deal has not been properly calculated.
At AAA Consortium, We Look at the Deal Behind the PO
At AAA Consortium, we do not only look at the value printed on a purchase order. We assess the structure and feasibility of the opportunity.
The supplier costs. The logistics. The payment timeline. The margin.
Because our experience in the procurement and supply space has taught us something important:
Winning the purchase order is only the beginning. Successfully delivering it is what matters.
Have a valid purchase order but need funding to fulfil it? Submit your deal to AAA Consortium for assessment.
Your PO tells us the size of the opportunity. Your margin tells us whether the deal makes sense.