Funding Products
Purchase Order Financing: Fund the Order, Not the Balance Sheet
Purchase order financing pays your supplier directly so you can fulfill a confirmed order you could not otherwise afford. It is one of the few products where a large new customer strengthens rather than strains your position.
It is transaction-based, which means the deal is underwritten on the order and the buyer's credit as much as on your own financials.
How a transaction flows
You receive a confirmed purchase order from a creditworthy buyer. The finance company reviews the order, your supplier and your margin, then pays the supplier — often via letter of credit or direct payment.
Goods ship to your customer, you invoice, and when the customer pays, the finance company recovers its cost and remits the balance to you. Many companies then roll the invoice into factoring to shorten the wait.
What makes a deal financeable
- A confirmed, non-cancellable purchase order
- A buyer with solid commercial credit
- Gross margin generally above 20% on the transaction
- Finished goods rather than raw materials requiring heavy assembly
- A supplier with a reliable delivery record
How it differs from factoring
PO financing happens before delivery and pays your costs. Factoring happens after delivery and advances against the invoice. They solve adjacent problems and are frequently used together on the same order.
The cost reality
PO financing is expensive per transaction relative to a bank line, often quoted as a percentage of the funded amount per 30-day period. Judge it against the alternative: the profit on an order you otherwise could not accept at all.
Frequently asked questions
- Can a startup use purchase order financing?
- Yes, more readily than most products, because the underwriting weight sits on the buyer's credit and the order itself.
- Does it work for services?
- Generally no. It is designed for physical goods with an identifiable supplier and delivery.
- What margin do I need?
- Most providers want at least 20% gross margin on the transaction so the financing cost does not consume the profit.