Purchase Order (PO) Financing

“Let the order fund the order”

Purchase Order (PO) Financing is a working-capital solution that provides funding before goods are produced or delivered, based on a verified customer purchase order.

Instead of turning away a large order—or struggling to pay suppliers—you can use the customer’s commitment as collateral. The PO financier pays your suppliers so you can fulfill the order, and once the end customer pays, the loan is repaid.

PO financing is short-term, transaction-specific funding used before receivables exist.

How It Works (Simple Flow)

  1. Customer issues a confirmed purchase order

  2. PO financier approves and pays your suppliers directly (usually 70–100% of the supplier cost)

  3. Goods are produced and shipped to the customer

  4. Customer pays invoice

  5. PO financier deducts fees and remits the remainder to you

Think of it as “supplier-side financing” rather than receivables financing.

PO Financing can be especially helpful for:

  • Manufacturers

  • Distributors / wholesalers

  • Import/export companies

  • E-commerce businesses with high supplier costs

  • Seasonal companies with cash-intensive production cycles

If your business regularly receives large orders but cash flow can’t keep up with supplier demands, PO financing may fill the gap.

Example Scenario

A distributor receives a $500,000 purchase order from a big-box retailer.

  • Supplier requires $300,000 upfront to produce the goods.

  • Distributor doesn’t have the cash on hand.

Solution:
A PO financier funds the $300,000 supplier payment directly.

  • Goods ship → customer pays the full $500,000

  • PO financier deducts the advance + a 3% fee ($9,000)

  • Distributor receives the remaining proceeds

The deal gets done, revenue is earned, and growth continues without draining working capital.

Costs & Considerations

  • Fees: Typically 2–6% per 30 days (higher than bank lines but lower than many fast-cash options).
  • Customer credit: Lenders care more about the end customer’s creditworthiness than yours.
  • Eligible goods: Usually inventory that is pre-sold, tangible, and easily verifiable.
  • Supplier reliability: PO financiers require established, reputable suppliers.
  • Transaction-only funding: Not meant for general working capital—just to fulfill confirmed orders.

Benefits

✅ Enables fulfillment of large or unexpected orders
✅ Helps fast-growing companies accept big deals without cash strain
✅ Based on customer strength, not your company’s balance sheet
✅ Can pair with factoring or invoice financing

Drawbacks

⚠️ More expensive than traditional bank credit
⚠️ Works only for product-based (not service-based) companies
⚠️ Requires strong, verifiable POs and trustworthy suppliers

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Takeaway

PO Financing turns confirmed demand into immediate production capital, allowing businesses to scale, accept larger orders, and keep customers happy—even when cash flow is tight.

 

It’s not meant for everyday expenses, but when a big order arrives and cash is tight, PO financing can turn “We can’t afford to take this deal” into “We can deliver.”