Quick answer
Purchase order finance pays your supplier to produce or deliver goods for a confirmed customer order, so you can accept orders larger than your available cash. Once the goods are delivered and your customer pays, the funder is repaid and you keep the margin. It's assessed largely on the customer's reliability, the supplier's ability to deliver and the profit in the deal.
Key points
- Funds the supplier for a specific, confirmed customer order.
- Your customer's reliability matters more than your balance sheet.
- Works best with healthy margins and finished goods.
- Often paired with invoice finance once goods are delivered.
- Also called
- PO finance, PO funding
- Pays
- Your supplier
- Assessed on
- Customer, supplier, margin
- Pairs with
- Invoice finance
The big-order problem
A large customer, perhaps a supermarket chain, a government department or a national retailer, sends you an order that’s three times anything you’ve handled before. It’s a breakthrough. But your supplier wants paying before they’ll produce or ship, and you don’t have the cash. Without help, you’d have to decline or negotiate the order down.
Purchase order finance lets you say yes.
How PO finance works
- Your customer issues a confirmed purchase order.
- You get a quote from your supplier.
- The PO funder reviews the customer, supplier and margin.
- The funder pays your supplier directly.
- Goods are delivered to your customer.
- Your customer pays; the funder takes its share and you keep the rest.
Often, once goods are delivered and you’ve invoiced, the transaction moves into invoice finance to bridge the customer’s payment terms.
What PO funders look for
| Factor | Why |
|---|---|
| Customer quality | They’re the source of repayment |
| Supplier track record | The goods must arrive as ordered |
| Margin | Must cover finance costs comfortably |
| Type of goods | Finished goods are simpler than custom manufacturing |
| Your experience | Have you delivered similar orders before? |
When PO finance isn’t the right fit
PO finance works best for finished goods resold at a healthy margin. It’s harder when you’re manufacturing the goods yourself (where trade finance or contract funding may fit better), when margins are thin, or when the customer has a shaky payment record.
If you’re unsure which shelf suits your order, send us the details.
An illustrative example
A uniform supplier wins a contract to supply a state agency with several thousand garments. PO finance pays the manufacturer; once delivered, the invoice is financed until the agency pays on its standard terms. (Illustrative only.)
What else is purchase order finance called?
Lenders, accountants and search engines don’t all use the same words. You’ll also see this entry described as PO finance and PO funding. In our A–Z index every one of those names points back to this page, so whichever term you searched, you’ve landed on the same thing. If a lender uses a name you don’t recognise, ask them to describe how the security, the term and the repayments work; that tells you far more than the label.
Where does it sit in the directory?
This entry lives on the trade, stock and asset shelf. It’s most often used for stock, trade and invoices, buying, starting or growing a business, and the security usually involved is invoices, stock or orders. It is one of the quicker entries to put in place when the paperwork is ready. Its closest neighbours are:
- Export finance — Bridge the long wait between shipping overseas and getting paid.
- Trade finance — Pay suppliers now and repay once the goods have sold.
- Import finance — Pay overseas suppliers, freight and duty before the container lands.
- Inventory finance — Borrow to buy stock, with the stock itself part of the picture.
To compare all of them at once, filter the Loan Finder by purpose and security.
Common mistakes to avoid
- Assuming every invoice qualifies. Funders exclude disputed, overdue, related-party and some progress-claim invoices, so check eligibility early.
- Overlooking concentration limits. If one customer makes up most of your sales, the available funding may be lower than expected.
- Not reading the minimum term. Some facilities have notice periods and minimum fees that matter if your needs change.
- Using it to mask thin margins. Trade and receivables funding works best when each transaction is profitable after finance costs.
- Poor record-keeping. Clean, up-to-date ledgers and stock records make approval smoother and limits higher.
What should I ask before signing up for purchase order finance?
A short list of questions saves a lot of regret. Put these to any lender or specialist before you commit:
- What percentage is advanced? The advance rate on eligible invoices or stock decides how much cash you actually receive.
- Which items are excluded? Know the eligibility rules for overdue, disputed and concentrated debts or stock.
- How are fees charged? Discount charges, service fees and minimums can be structured very differently.
- Is the facility confidential? Decide whether you’re comfortable with customers knowing a funder is involved.
- What’s the minimum term and notice period? Exit terms matter if your business changes direction.
If an answer is vague, ask again or ask for it in writing. Good lenders are happy to explain their terms clearly.
Take the order you’ve been waiting for
If a big order is within reach but your cash isn’t, PO finance could close the gap. There’s no credit check when you enquire, and your enquiry stays with one specialist instead of being sent to a long roll-call of funders.
Please tell us about the customer, the order value, the supplier and your margin. Clear numbers mean a quick, accurate answer. Start your enquiry.
Frequently asked questions
What's needed for purchase order finance?
A confirmed purchase order from a creditworthy customer, a reliable supplier, and a margin that covers the finance cost with room to spare.
Does my business need a long trading history?
Less than for many loans, because the customer and the order carry much of the weight. Some history still helps.
What kinds of businesses use it?
Wholesalers, distributors, resellers and importers who buy finished goods to fill large orders, especially from government or large corporate customers.
How is it repaid?
From your customer's payment for the order. Some funders collect payment directly or roll the deal into invoice finance.