Purchase Order Financing
You have the order. You do not have the cash to pay the supplier who has to make it. Purchase order financing pays your supplier directly against a confirmed purchase order from a creditworthy customer, so you can fill the order instead of turning it down.
It is short term, transaction based capital used to purchase or manufacture pre-sold goods, and it is the one facility that lets a smaller company accept an order bigger than its balance sheet. Transactions run from $100,000 to $10,000,000.
Purchase Order Financing Parameters:
| Transaction Size | $100,000 to $10,000,000 |
| Advance | Up to 100% of the Cost of Pre-Sold Inventory |
| Includes | Freight and Duty |
| Pricing | Approximately 2.50% to 4.00% per 30 Days |
| Supplier Payment | Letter of Credit, Payment Against Documents or Wire |
| Goods | Pre-Sold Finished Goods, Domestic and Imported |
| Takeout | The Receivables Facility, on Invoicing |
| Collateral | The Goods and the Resulting Receivable |
| Real Estate | Not Required |
| Geography | Domestic and Cross-Border |
Click here to download our Purchase Order Financing program flyer
How Purchase Order Financing Works
1. You Hold a Confirmed Purchase Order
The order comes from a customer the lender can credit check, such as a national retailer, a distributor, a prime contractor or a government buyer.
2. Supplier Costs Are Verified
The lender reviews the supplier quote or pro forma invoice and confirms the supplier can perform.
3. The Lender Pays Your Supplier Directly
Up to 100% of the cost of pre-sold inventory including freight and duty, by letter of credit, payment against documents, or wire transfer to a domestic or foreign manufacturer.
4. The Goods Ship
Delivery goes to your customer, a third party warehouse, or selectively to your own warehouse.
5. You Invoice and the Advance is Repaid
Repayment comes out of the receivable the order creates.
The Handoff Between PO and AR
Purchase order financing and accounts receivable financing are two facilities stacked on the same transaction, and they hand off at delivery.
The purchase order lender funds production. Once your customer is invoiced, the accounts receivable lender advances the proceeds and pays the purchase order finance company directly, releasing the balance to you.
That handoff is the reason the two are quoted together. Line up purchase order funding alone and you have no exit. Line up receivables funding alone and the goods never get made. We arrange both sides so they close as one transaction.
Five Ways It Gets Structured
| Finished Goods Finance | Completed product bought for resale |
| Production Finance | Raw materials and manufacturing costs against a confirmed order |
| Government Contract Finance | Awarded federal, state or municipal contracts |
| Reseller Finance | Distributors and value added resellers buying against end customer orders |
| Project Finance | Multi-stage delivery with milestone funding |
Who It Is Built For
Purchase order finance is written for situations a bank will not touch: start-ups with a real order and no operating history, high growth companies whose orders have outrun their working capital, turnarounds rebuilding after a bad year, and companies in bankruptcy or reorganization.
The common thread is that the strength of the file is the buyer credit and the order in hand, not your balance sheet.
What Purchase Order Financing Will Not Do
It Will Not Fund Speculative Inventory
No confirmed order, no facility. The buyer commitment is the collateral.
It Will Not Fund Services
If there are no goods, you are looking at accounts receivable financing instead.
It Will Not Fund Thin Margin Orders
The gross margin has to carry the cost of both the purchase order advance and the receivables advance behind it, and still leave you a profit.
It Is Not Equity
It funds a specific transaction, not the business.
What We Need to Get You a Quote
| 1 | The confirmed purchase order or orders, with the buyer name and terms |
| 2 | Your supplier quote or pro forma invoice, showing landed cost |
| 3 | Your gross margin on the order |
| 4 | Current accounts receivable and accounts payable aging |
| 5 | Two to three years of financial statements plus year to date |
| 6 | Debt schedule and capitalization table |
| 7 | Your top 10 to 15 customers with full legal name, address and approximate monthly sales |
Common Questions
Does the lender pay my supplier, or do I?
The lender pays your supplier directly, commonly by letter of credit or wire. The money does not pass through your operating account, which is exactly what gives an overseas manufacturer the confidence to begin production.
Does it cover freight and duty, or just the goods?
Up to 100% of the cost of the pre-sold inventory including freight and duty.
How is this repaid?
Out of the receivable the order creates. When your customer is invoiced, the receivables lender advances against it and pays the purchase order finance company directly.
I am a start-up with one big order. Is that fundable?
It is one of the core cases for this product. A confirmed order from a creditworthy buyer can carry a company with no operating history at all.