Purchase Order Financing

Find the Best Purchase Order Funding For Your Business

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What is Purchase Order Financing?

Purchase order (PO) financing is a short-term funding solution that provides capital to pay supplier costs upfront for verified purchase orders. PO financing allows companies to accept orders on goods and adjust the loan basis up or down quickly to meet working capital needs.

If order volume drops, there’s no long-term commitment, so they can stop using it at any time. This funding solution protects cash reserves from declining because of cash flow problems related to work orders.

PO loans will finance an entire order of goods or a portion, 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 send the balance of the invoice to your company so that you receive payment.

Whether you’re a startup or an established small business, this product is available to small business owners who rely on purchase orders. Many clients receive PO 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 fund purchase orders.

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Get Started Today

AdvancePoint Capital makes the loan application process a simple, straightforward experience.

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How Does
Purchase Order Financing Work?

Consider this scenario: Your small business receives a large purchase order from a new or existing customer. The supplier of your company needs upfront payment for the supplies that are needed to start that customer’s purchase order, but the customer invoice won’t be paid for 60-90 days after shipment is received, and you do not have the liquid cash needed 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 seek financing from a traditional financial institution might not get approved, or the application process takes too long to solve the cash flow issue. That’s where PO financing works to help you access funds.

Purchase order funding can be one transaction or continuous, depending on the need. When funding a purchase order, payments are made directly to suppliers by the factoring company. Once you secure financing, your company can fulfill the order, with proceeds being distributed after shipment is received.

The Purchase Order Funding Process
from Beginning to End

  1. You send the purchase orders and supplier’s estimate for the goods to the PO finance company.
  2. The purchase order finance company pays your supplier for the goods, and your order gets completed.
  3. The supplier delivers the products to fulfill the customer’s order.
  4. Your company then invoices the customer for the goods.
  5. The customer pays directly to the PO funding company.
  6. After deducting their fees and what the customer pays, the PO 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: PO finance companies are more interested in the creditworthiness of the customer than the borrower
Documentation: Purchase orders and information about supplier and customer

What Are the Costs of Financing Purchase Orders?

The cost of financing purchase orders varies for each transaction. Typically, PO financing companies charge 1% to 3% of the amount funded, while other PO financing lenders charge a flat fee. Funders’ 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 Is the Most Common Use of Purchase Order Financing?

Most companies use PO financing to pay for the cost of goods upfront without using their own working capital. Purchase order loans help solve cash flow problems.

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 make great candidates for purchase order financing.

Purchase Order Financing “Target Audience”

  • Startup businesses with cash flow issues
  • Businesses 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 the long-term commitment of a loan and/or costs of a business loan
  • Fast-growing businesses 

What Documents Does a Purchase Order Financing Company Need to Grant Approval?

  • Purchase orders
  • Supplier information
  • Customer invoice information

Frequently Asked Questions About
Purchase Order Financing

The Bottom Line

Advice, Tips, and Warnings About Purchase Order Financing

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Purchase order financing is an excellent product to assist companies in accessing working capital for large projects and business 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 pursuing 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 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.

Get Started Today

AdvancePoint Capital makes the loan application process a simple, straightforward experience.

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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, with a wide range of benefits that you can take advantage of today for working capital or other needs.

Invoice Financing

Invoice Financing

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