What is a Local Purchase Order?

What is a Local Purchase Order?

In simple terms, a Local Purchase Order better known as LPO is a commercial document issued by a client or buyer to a vendor or seller for the purchase of goods.

Usually, a client will have first issued a quotation or tender to the customer for the supply of these goods.

A local purchase order is a legally binding document.

Note a “Work Order” is a document issued by a customer to a vendor requesting works done.

Also, read about books for business start-ups and development

Local Purchase Orders are designed for businesses that do not have enough working capital or cash.

You do not have to have any form of security in the way of physical assets that other types of loans require.

So what are my options to finance this Local Purchase Order?

1. Private investors

For you to get an LPO, you might want to consider getting financing from shylocks.

This option, however, has a very high interest, all you need to do is ensure that you do your math right before committing.

Involving a shylock is very costly. In doing your math, you will know precisely what amount you will make in profits.

2. Banks

Most banks these days finance Local Purchase Orders.

These banks include KCB, National Bank, Equity, CO-OP, Diamond Trust Bank and Gulf African Bank, among others.

Most banks can finance LPOs from Ksh. 10,000 to around Ksh. 5,000,000.

Banks, however, have limitations like you must have an account with them before you can get financing.

Good credit is also a requirement if you want to get financing from a bank, this might be a little tough if you are just starting though.

These are some of the requirements different kinds of banks require to finance a Local Purchase Order:

  1. A Valid LPO from a ministry or Parastatal, a reputable (blue chip) company, listed NGOs or KCB List of Corporate companies
  2. A quotation of items of purchase from the supplier
  3. Statements for the last six months (for non-customers)
  4. Copy of proposed collateral for borrowings above Kshs. 1,000,000
  5. Valid business registration and permit documents
  6. Valuation report where applicable
  7. Audited accounts for amounts above 5.0 M
  8. List of past contracts completed – dates, amounts, etc
  9. Debtor/creditor duly aged analysis
  10. 3% negotiation fees on the financed amount

3. Microfinance solutions

Save from banks, and microfinance institutions can also offer business loans that you can use to finance Local Purchase Orders.

The Kenya Women Finance Trust and Faulu Kenya are an excellent example of institutions that can offer loans in case you are a member and have shares in them.

As a business, however, you might not be in a position to apply for one unless you are operating as a sole proprietor.

This is because a sole proprietor is the only decision-maker and do not need any consultation when making decisions.

A sole proprietor is also affected directly by their actions in business; thus will be more accountable for such a move.

Women and the youth are also encouraged to get loans from these institutions as they are geared to helping such groups.

What microfinance solutions require to finance a Local Purchase Order

  1. A company must be registered with the relevant government body
  2. Companies, groups and partnerships membership composition must be at least 70% women and 30% men (or 100% women)
  3. A valid Local Purchase Order/Local Service Order duly signed and stamped by the procuring entity, i.e. public institutions (listed in the public procurement and disposal Act)
  4. Kshs. 2 Million is the maximum amount available for this loan per individual borrowing
  5. Duly signed Letter of Undertaking and acceptable collateral as per Fund’s Credit Policy. Acceptable collateral are bank guarantee, shares or motor vehicle
  6. Customer account details
  7. A one-off administration fee of 5% of the loan amount
  8. Tenure of 90 days
  9. Certified copy of the letter by the supplier (loanee) to the procuring entity requesting payment through Women Enterprise Fund
  10. Amount financed is 60% of the LPO amount

Also, read about business cash flow management

When you get started on a Local Purchase Order

When you get financing for a Local Purchase Order, these are some of the features that you receive:

  1. A grace period of up to 180 days
  2. Repayment period of up to 12months renewable
  3. Amounts between Ksh. 50,000 to Ksh. 1,000,000
  4. Insurance cover against death and permanent disability
  5. Flexible security requirements
  6. Financing of up to 75%
  7. Competitive interest rates charged

Local Purchase Order: Important notes to remember

  1. You should avoid duplicating purchases which may lead to losses by keeping a record of all your purchases.
  2. Keep a record of all purchases to avoid an overcharge by sellers or disagreements from arising.
  3. Manage your inventory effectively to keep records of your purchases in an organized manner.
  4. With good records, you will have a good relationship between the seller and buyer hence easier to work together.
Share on:

Beth is a Kenyan Journalist with a passion in matters Kenya. She is knowledgable about the country of Kenya and shares her knowledge with our readers.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.