PO Financing vs. Production Finance

One common mistake that prospects make is to confuse purchase order financing with other forms of financing, such as production finance. The confusion is understandable, the name "purchase order financing" sounds intuitive and many people assume that it means that any order can be financed. Unfortunately, that is not correct.

Purchase order financing companies will only finance certain types of purchase orders. Specifically, for an order to qualify:

1. The client must be a re-seller and not a direct manufacturer. Using a 3rd party manufacturer is ok though
2. The client must buy all the goods from the order from a single source. Said differently, each order must have a single supplier.
3. The profit margins must be at least 15%

Here is what purchase order CANNOT do:

1. Help finance the machinery to deliver on a purchase order
2. Cover employee expenses or rent

These last two points fall under the real of production financing (or perhaps a business loan or line of credit)


Be sure to read our new information section on po financing at factoring articles.