What is Purchase Order Financing?

Purchase order financing is a short-term funding option that provides capital to pay suppliers upfront for verified purchase orders. Purchase order financing allows companies to accept orders on goods and adjust the loan basis up/down quickly to meet needs. If order volume drops, there’s no long-term commitment so they can stop using it at any time. This funding product protects cash reserves from declining because of cash flow challenges related to work orders.

Purchase order loans will finance an entire order of goods or a portion of it, depending on the purchase order funder. When the supplier is ready to ship the order, the purchase order financing company collects payment directly from the customer. The purchase order funder will subtract their fees and then sends the balance of the invoice to your company.

Whether a startup or an established business, this product can be available to small business owners who rely on purchase orders. Many clients receive funding on their first transaction as a new company. When you need a flexible option to offer your finished goods to the customer, we can help.

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How Does Purchase Order Financing Work?

A business receives a large Purchase Order (PO) from a new or existing customer. The supplier of your company needs upfront payment for the supplies that are needed to start that purchase order, but the customer invoice won’t be paid for 60-90 days after shipment is received, and you do not have enough cash to cover the cost of supplies. This creates a working capital issue that becomes a “catch 22”. Without the money, you risk losing the order and customer permanently. Many companies that then try for traditional financing might not get approved, or it takes too long to process to solve the cash flow issue. That’s where P.O. financing can help.

Purchase order financing can be one transaction alone and/or be continuous depending on the need. When funding a purchase order, payments are made directly to suppliers by the purchase order funder. Your company can then fulfill the order, with proceeds being distributed after shipment is received.

The Purchase Order Financing Process from Beginning to End

  • You send to purchase order finance company purchase order and supplier’s estimate for the goods.
  • Purchase order finance company pays your supplier for the goods, and your order gets completed.
  • The supplier sends the products to the customer.
  • Your company then invoices your customer for the goods.
  • The customer pays directly to the purchase order financing company.
  • After deducting their fees and what the customer pays, the financing company sends you the remaining balance.

Purchase Order Financing Product Overview

Terms: Immediate transaction 

Fees: Origination Fees vary typically 1.5% to 3% of purchase order

Credit Standards: Credit is not evaluated. PO funders are more interested in the creditworthiness of the customer

Documentation: Purchase Order and Information about supplier and customer

What are the costs of Purchase Order Financing?

The cost of financing purchase orders varies for each transaction. Typically the charge is 1% to 3% of the amount funded. Funder’s underwriting factors that impact fees can include: paying upfront for goods, delivery according to contract, and delivery time frame of goods to get paid.

What are the most common uses of Purchase Order Financing?

  • Pay for the cost of goods upfront without using your own capital.

What are the best industries for Purchase Order Financing?

  • Manufacturing
  • Distributors
  • Import/Exporters
  • Resellers
  • Wholesale B2B Industries
  • Any Businesses with tight cash flow and a need to purchase materials before fulfilling orders, jobs, or 

Purchase order financing “target audience” within the above industries;

  • Startups Businesses
  • Businesses Turnarounds that lack cash for new projects or large orders
  • Businesses that cannot get approved for loans or business lines of credit
  • Businesses who want to avoid long term commitment of a loan and/or costs of a business loan.
  • Fast-Growing Businesses  

What documents may be needed to get approved for Purchase Order Financing?

  • Purchase Order
  • Supplier Information
  • Customer Invoiced information

Frequently Asked Questions about Purchase Order Financing

What are the Benefits of PO Financing?

  • Businesses can take on more business than current cash flow allows
  • Purchase Order Financing is not a long term commitment like a loan
  • Purchase Order Financing has low fees and costs
  • Purchase Order Financing pays your suppliers directly on time

What is PO financing?

PO financing is short for “purchase order financing,” and is a flexible option that you can take advantage of. PO financing offers capital to pay suppliers upfront for purchase orders of goods. This type of loan product gives companies the ability to accept their influx of orders and adjust their PO financing loan based upon order volume. With no long term commitment, PO financing is a great way for companies that rely on orders to finance purchase order operations with ease. PO financing offers a way to deal with customer orders without being tied down by loan products. You’re able to manage these customer orders easily with PO financing and manage your finished goods and inventory with ease.

Is Purchase Order Financing difficult to obtain?

Purchase Order financing is not difficult to obtain, but PO funders have different criteria for approval. If you’re wondering whether or not you’re qualified for purchase order financing, make sure that you’re checking off all of the boxes.

The following is what commonly reviewed qualifications in the approval process.

  • Does your company make the goods it sells or just resells goods from the supplier? 
  • The amount of purchase order
  • The purchase order transaction cannot have a cancellation clause
  • The borrower needs to have a good reputation and be in good financial standing.
  • The gross margin of profit on the transaction
  • The customer involved needs to be creditworthy. Some PO funders will do a business credit check on your customer or customers. Some PO funders will not do credit checks, but they will still look for a track record of timely payments, bankruptcies, or litigation related to the customer.
  • The supplier needs are reputable with a track record of delivering orders on time, made to customer specifications.

Can I qualify for Purchase Order Financing if I have bad credit?

Yes, you can qualify for purchase order financing if you have bad credit, but keep in mind, the customer involved credit may need to be creditworthy. Some purchase order finance companies will do a business credit check on your customers. There are purchase order finance companies who don’t do credit checks, but they will look for a track record of timely payments, bankruptcies, or litigation related to the customer.

Can I get Purchase Order Financing if I am a startup?

The short answer is yes! Many purchase order financing companies will fund a startup’s first transaction if it meets normal qualification criteria. Simply check off all of the boxes and your goods will be good to go.

The Bottom Line: Advice, Tips, Warning’s about Purchase Order Financing

Purchase order financing is an excellent product to assist companies in accessing capital for large projects and growth. With purchase order financing, you can access the capital and not sacrifice cash flow. The costs are minimal compared to the benefits of this product, so a cost versus benefit analysis is a no brainer. Your goods and orders deserve a solution that works.

When thinking of getting purchase order financing, the purchase order financing company is your partner in evaluating any risk in the transaction to avoid any problems or disruption in your overall operation. If the purchase order finance company says no to a certain transaction, it’s for a good reason. Remember, approvals are specific to each transaction, so sometimes there will be approvals on some transactions, and others will be declined. It’s case by case.

We do recommend purchase order financing if you meet the qualifications, as it is a great product to add to your financing toolbox. Just make sure that you have the right purchase order financing company by your side to help with the customer orders.

The fast, convenient and straightforward way to get the money you need for your business – now! Get Your Quote Today by filling out our simple form.

Alternatives to Purchase Order Financing

While purchase order financing offers plenty of sound choices for borrowers, there are more options available. Alternative options to PO financing might be what you’re looking for and have a wide range of benefits that you can take advantage of today for working capital or other needs.

Invoice Financing

Invoice Factoring works by providing a cash advance based on the total value of the unpaid or outstanding invoices. You typically receive up to 90% of the invoice value upfront. The percentage of the amount of invoice factored is based on the risk profile of your clients. Once your client pays off the invoice, you receive the remaining value of the invoice, less a factoring fee. This fee can be structured in any number of ways, but it generally nets out to be about 1% to 2.5% of the invoice value.

Product Overview

Rates: Factor rates starting at 1% to 2.5% 

Fees: Monthly service fee depending on volume

Credit Standards: Customer credit evaluated. Not a business owner who is factoring 

Documentation: Application, accounts receivable aging report, invoices and client information report

Benefits and Best Uses of Invoice Factoring

Invoice financing is a great option to help improve cash flow and get paid quicker on invoices for nominal fees.

Business Credit Cards

Business credit cards are a revolving credit line, like a personal credit card. A card is issued that can be used for both purchases and payments. Business credit cards are part of the overall finance toolbox that you have at your disposal and are used in conjunction with other loans. Business credit cards are the fastest way to access capital for the company.

Product Overview

Rates: Interest rates start at 0% up to 28.99%

Terms: Revolving line of credit with no term limits 

Fees: $0 to $500 annual fees 

Payments: Low flexible monthly payments

Credit Standards: Must have good to excellent credit and deep credit history

Turnaround Time: Instant to 24 hours

Benefits and Best Uses of Business Credit Cards 

Business credit cards are flexible and offer the ability to access the money instantly. These can be used to both purchase items and use it to pay for bills or invoices. This finance product is great to access capital in a pinch or emergency.

Business Line of Credit

A business line of credit is a finance option that you can draw funds as needed in a moment’s notice, just like a credit card. The business line of credit is that type of solution that operates like a credit card in that you can draw money on demand up to a credit limit. The costs are less than a credit card, but this finance product is harder to obtain and get approved for.

Product Overview

Rates: Rates starting at 6.50%

Terms: Revolving credit line that is renewed semi-annually or annually

Fees: Origination Fees 0% to 3%

Payments: Monthly, Bi-Weekly or Weekly payments

Credit Standards: All credit considered. Good to Excellent credit preferred.

Special Features: Approval to funding can be same day up to 3 days 

Documentation: Full Documentation. A 1-page application and 3 months bank statements, sometime financial will be required depending on credit limit.

Time Frame: Same day to up to 5 days 

Benefits and Best Uses of Business Line of Credit 

Flexibility is the main reason businesses choose a business line of credit if they are qualified. The ability to draw money at any time up to a credit limit is very popular with business owners.

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Short Term Business Loans

When traditional financing is not an option, Short term loans can be a great alternative if you use the money properly. Short term business loans provide a fixed amount up front (lump sum) of money with a fixed payback amount calculated using a factor rate over a short fixed term of time typically 6 to 18 months. Rates are not principal & interest but are based on a “factor cost” and costs more than traditional loans. 

This finance product is popular because it requires very little paperwork, and credit requirements are much more forgiving than traditional loans. To mitigate risk, this product charges more for costs, is a shorter term, and the payments are more frequent.

Product Overview

Rates: Factor rates starting at 1.09% up to 1.45% 

Terms: 6 to 18 months in duration (typically 12 months or less)

Fees: Origination Fees 0% to 5%

Payments: Weekly, Bi-Weekly and in some cases daily Monday-Friday

Credit Standards: All credit considered. Poor to Excellent credit accepted.

Special Features: Approval to funding can be same day to 24 hours 

Documentation: Low Documentation. A 1-page application and 3 months bank statements required 

Time Frame: Same Day to 24 hours  

Benefits and Best Uses of Short Term Business Loans 

When the bank says no, short term lenders say yes! This product is a great alternative that can come in handy for the business that is in need of the money now for cash flow and was turned down by traditional financing. Reduced documentation is needed, and credit requirements are lower than that of traditional financing.

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Business Cash Advance

Business Cash Advances is a “Purchase of Future Sales Agreement or a Merchant Cash Advance” The advance provides a fixed sum of money upfront to a business with a fixed payback amount (which is greater) known as a specified amount. The advance is repaid by taking a fixed percentage of future overall sales deposits. Payments are collected by an ACH fixed daily or weekly payment deducted from a business bank account, which is based on the fixed percentage of future sales. After every month, if the fixed payments taken are more than the set future percentage of sales than a refund back to the merchant can occur. This repayment continues until the payback amount is paid back in full. Therefore, there is no term limit with advances as the fixed payback percentage ever changes. 

Product Overview

Rates: Factor rates starting at 1.09% up to 1.45% 

Terms: No term limits (payoff depends on future sales) 

Fees: Origination Fees are typically 0% to 5%

Payments: Fixed ACH payments are weekly or daily Monday-Friday 

Credit Standards: Poor to Excellent credit accepted. All credit considered

Documentation: Reduced Documentation. 1-page Application and 3 months bank statements are all that is required.

Time Frame: Same Day to 24 hours

Benefits and Best Uses of Business Cash Advance 

A business cash advance is an alternative when other financing options are not available to the business owner. Business Cash Advance provides capital to a company when other options say no.

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Merchant Cash Advance

A merchant cash advance is a “Purchase of Future Sales Agreement” the same as Business Cash Advance, but the biggest difference is the repayment is attached to the future credit card sales by taking a set percentage of future credit card sales at a time of batch until the advance is paid back in full. 

Product Overview

Rates: Factor rates starting at 1.09% up to 1.45% 

Terms: No term limits (payoff depends on future credit card sales)

Fees: Origination Fees are typically 0% to 3%

Payments: Set Percentage of future credit card sales at batch time 

Credit Standards: Poor to Excellent credit accepted. All credit considered

Documentation: Reduced Documentation. 1-page Application, 3 months processing statements and 3 months bank statements are all that is required.

Time Frame: Same Day to 24 hours

Benefits and Best Uses of Merchant Cash Advance A merchant cash advance is an alternative to Business cash advance because it allows for low average balances in a business bank account and offers repayment through a fixed percentage of credit cards sales instead of overall sales and payments fluctuate down in slower sales times creating no term limit. Documentation and credit requirements are less than traditional financing due to the repayment method. This is a great option for cash flow needs.

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How to Apply for Purchase Order Financing

AdvancePoint Capital has the experience to navigate business owners through the loan product marketplace and provide all options that are available. Our customers love the fast, streamlined process and high approval rates that come from working with us for purchase order financing. All credit scores are considered.

Applying for a loan with AdvancePoint Capital is as simple as a 1, 2, 3, 4 process. Start with this online form, then fill out the short application page, wait a few hours for your approval, and then get your money!

The fast, convenient, and straightforward way to get the financing you need for your business – now! Get your Quote Today by filling out our simple form.

* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.