Purchase Order Financing Basics

PO financing seems to be a misunderstood from of business financing. Contrary to what it's name might imply, it's a fairly narrow for of funding. However, there are instances where purchase order financing can be a smarter alternative to a business loan.

Who can PO Financing Help?

First, purchase order funding is designed specifically to help resellers buy products to fulfill purchase orders. It can only work when the client is purchasing goods and re-selling them without any modification, alteration or re-manufacturing. In other words, the client buys product A from his supplier and sells product A to his client (at a mark up). Sometimes, po financing can also be used by companies that use third party manufacturing. But these opportunities can be complicated to fund if they have more than one supplier.

How is the Transaction Structured?

The structure of a purchase order financing transaction is very simple. Once you get the order, the purchase order financing company pays your supplier, who then delivers the product. This is a key difference between business loans and po financing since you don't get the funds - your supplier does. The transaction is completed when your client pays for the products. Payment is sent to the purchase order financing company, who does the settlement.


Here is the typical client profile for companies that use invoice factoring or purchase order financing.



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