Overview
Got a big order but not enough cash to fill it? Purchase order financing covers your supplier costs so you can deliver. The lender pays your supplier directly, you fulfill the order, your customer pays, and you settle up and keep the profit.
This is short-term, deal-specific financing for businesses growing faster than their cash flow allows. You need a legitimate purchase order from a creditworthy customer and margins of at least 20–30% to cover financing costs. Ideal for seasonal spikes and large one-off orders.
How do I get one?
Key qualification requirements:
Valid Purchase Order
The business must have a legitimate and verifiable purchase order from a creditworthy customer. Lenders need to be confident that the order is real and that the customer will pay for the goods.
Supplier Relationship
The business must have a reliable relationship with its supplier, and the supplier must be willing to accept payment from the financing company. The lender often pays the supplier directly.
Profit Margin
The business should have a sufficient profit margin on the order to cover the cost of financing and still make a profit. Lenders typically look for margins of at least 20% to 30%.
Business Financials
While purchase order financing is primarily based on the strength of the purchase order and the customer's credit, the business may still need to provide financial statements or other documentation to demonstrate its ability to complete the order.
Type of Goods
Purchase Order Financing is typically used for tangible goods rather than services. The goods must have a clear resale value and be easily deliverable.
Customer Creditworthiness
The lender will evaluate the creditworthiness of the customer placing the order, as the repayment of the loan is dependent on the customer fulfilling their payment obligations.
Interest Rates and Fees
PO financing runs 1.8% to 6% per month on the advanced amount. That's expensive compared to a term loan, but you're paying for speed and scale on a single deal, not long-term debt.
The real risk is payment timing. If your customer pays in 30 days, a 3% monthly fee costs you 3%. If they drag it to 90 days, that same fee triples. Before you sign, nail down your customer's payment history and build the financing cost into your margins.
PO financing makes sense when the profit on the order comfortably exceeds the fee, typically at 25%+ margins, and when you'd lose the deal without it. We'll model the numbers with you so you know exactly what you keep after costs.
FAQ