What Is Purchase Order Financing?
Purchase order (PO) financing is a short-term funding solution for businesses that have secured a customer order but lack the capital to pay suppliers to fulfill it. A PO financing company pays your supplier directly, you deliver the goods, and repay the funder when your customer pays — typically within 30–120 days.
How PO Financing Works
Step 1: You receive a purchase order from a creditworthy customer. Step 2: Submit the PO to your financing company. Step 3: Funder verifies the customer’s creditworthiness and approves. Step 4: Funder pays your supplier directly (70–100% of supplier invoice). Step 5: You deliver goods and invoice your customer. Step 6: Customer pays the funder. Step 7: Funder remits the balance (customer payment minus fees) to you.
PO Financing Requirements
| Requirement | Standard |
|---|---|
| Customer Creditworthiness | Creditworthy business customer (not individual consumers) |
| Gross Margin | Typically 15–25%+ to cover financing costs and leave profit |
| Order Size | Usually $50,000 minimum for most funders |
| Supplier Relationship | Established relationship with verifiable supplier |
| Type of Business | Product-based businesses (not services) |
PO Financing Cost
Fees are typically 2–6% per 30-day period the PO is outstanding. On a $200,000 order at 3% per month for 60 days = $12,000 in fees. PO financing is expensive but enables you to take orders that would otherwise be impossible — often representing 20–50%+ profit on the net amount even after fees.