PO Funding and Profit Margins

It is not great secret that purchase order financing (or po funding) is more expensive than invoice factoring. The reason is simple. PO funding is a riskier proposition for the funding company. The handle their risk by increasing their price.

Most experts say that PO funding can work if a company has at least 20% profit margins. However, I have always taken the conservative approach and suggest that a company should have at least 30% profit margins.

Why? Simple. When doing a purchase order financing transaction, we need to make sure that there is plenty of profit left for the owner. Ideally more than 66% of the profit margins.