Purchase-order financing can help qualified businesses pay suppliers when a confirmed customer order exceeds available working capital. The financing is generally tied to a specific transaction and the provider’s ability to verify the customer, supplier, margins and delivery process.
When Purchase Order Financing May Be Appropriate
- A creditworthy customer has issued a confirmed purchase order
- The supplier requires payment before production or shipment
- The transaction has sufficient gross margin
- The business lacks enough working capital to fulfill the order
- Goods can be delivered and invoiced through a verifiable process
How the Transaction Commonly Works
The financing provider reviews the purchase order, customer, supplier, product, cost, margin and delivery requirements. If approved, the provider may issue payment or a controlled payment mechanism to the supplier. After goods are delivered and the customer accepts the invoice, an accounts-receivable facility or customer payment may complete the transaction.
Purchase Order Financing Versus Invoice Factoring
Purchase-order financing addresses supplier costs before goods are delivered. Invoice factoring generally begins after the business has performed, delivered and issued an eligible invoice. Some transactions use both structures in sequence.
Information Commonly Required
- Confirmed purchase order or contract
- Supplier quote and payment requirements
- Customer credit and payment terms
- Product specifications and delivery schedule
- Gross-margin and transaction-cost analysis
- Shipping, inspection and acceptance details
- Business formation and ownership documents
Transactions That May Not Fit
Financing may be difficult where margins are too thin, performance cannot be verified, goods are highly customized, the customer can cancel freely, or the transaction involves unacceptable legal, country or concentration risk. Each provider applies its own eligibility rules.
Learn about government contract financing, invoice factoring, working capital and all commercial financing solutions.