The Benefits of Purchase Order Financing

What is Purchase Order Financing?

Let’s say you have a client who has a large order they want to place but you don’t have the financial means to cover the cost to do so. Purchase order financing also known as PO financing or purchase order factoring, is a funding solution for distribution businesses that lack working capital to get inventory to complete customer orders they receive.  Different from invoice factoring, the process of selling your invoices for work completed, with PO financing you can receive a cash advance for goods that have been ordered, but not yet delivered.

What Types of Businesses Can Benefit from Purchase Order Financing?

Purchase order financing is popular amongst manufacturing and distribution companies with credit-worthy clients who have large orders to fill. It’s especially beneficial to start-ups and companies who see seasonal peaks or unpredictable cash flow. The usual types of businesses who benefit from purchase order financing include: government contracts, wholesale distributors, industrial, manufacturing, importers, exporters, drop ship orders, and direct ship orders.

However, we do have a few guidelines for eligibility:

• Minimum gross profit for transactions must be at least 20%
• Having worked with and conducted similar business with comparable clients
• First transaction of no less than $100,000
• You must provide qualified purchase orders or letters of credit

How Does Purchase Order Financing Work?

Once your company qualifies for purchase order funding, the actual process follows these steps:

1. You will submit the purchase order to the P.O. funder your partnered with.
2. The factor will directly pay the supplier for the purchase order.
3. Once the supplier delivers the product, you will issue an invoice to the customer.
4. You will sell that invoice to the factoring company in order to be advanced the money through accounts receivable factoring process.
5. The invoice factoring company will pay the P.O. funder, plus fees, and then will advance the remaining invoice to you, minus the reserve.

Let’s say you have a client who has a large order they want to place but you don’t have the financial means to cover the cost to do so. Purchase order financing also known as PO financing or purchase order factoring, is a funding solution for distribution businesses that lack working capital to get inventory to complete customer orders they receive.  Different from invoice factoring, the process of selling your invoices for work completed, with PO financing you can receive a cash advance for goods that have been ordered, but not yet delivered.

What Types of Businesses Can Benefit from Purchase Order Financing?

Purchase order financing is popular amongst manufacturing and distribution companies with credit-worthy clients who have large orders to fill. It’s especially beneficial to start-ups and companies who see seasonal peaks or unpredictable cash flow. The usual types of businesses who benefit from purchase order financing include: government contracts, wholesale distributors, industrial, manufacturing, importers, exporters, drop ship orders, and direct ship orders.

However, we do have a few guidelines for eligibility:

• Minimum gross profit for transactions must be at least 20%
• Having worked with and conducted similar business with comparable clients
• First transaction of no less than $100,000
• You must provide qualified purchase orders or letters of credit

How Does Purchase Order Financing Work?

Once your company qualifies for purchase order funding, the actual process follows these steps:

1. You will submit the purchase order to the P.O. funder your partnered with.
2. The factor will directly pay the supplier for the purchase order.
3. Once the supplier delivers the product, you will issue an invoice to the customer.
4. You will sell that invoice to the factoring company in order to be advanced the money through accounts receivable factoring process.
5. The invoice factoring company will pay the P.O. funder, plus fees, and then will advance the remaining invoice to you, minus the reserve.