Purchase Order Financing and DIP Financing

Most companies that go into chapter 11 bankruptcy are able to survive by using debtor in possession financing (aka DIP financing). There are a number of options that can be used for DIP financing. Factoring is one of those options that is gaining popularity, in part because invoice factoring offers more flexibility than conventional business loans.

An important question is - can purchase order financing be used as a DIP financing tool? Unfortunately, few if any factoring companies offer PO financing as a form of bankruptcy financing. The reason is that there is a risk that the insolvent company will never make it, leaving the po finance company to manage and own any unsold goods.