Purchase order financing

What is purchase order financing?

You receive a large order, say from a retailer or a government agency, and your supplier wants payment before shipping. A purchase order financer pays the supplier, often by letter of credit, the supplier ships to your customer, you invoice, and the customer pays the financer, which deducts its fee and sends you the margin.

Most deals pair it with invoice factoring: the factor buys the invoice on delivery, pays off the purchase order financer, and advances you the rest. It is common for importers, distributors, wholesalers and government contractors, and almost unknown for service businesses, since there has to be a physical product and a third party supplier.

Who qualifies for purchase order financing?

The financer underwrites the transaction more than your business. You need a written purchase order from a customer with solid credit, a supplier with a track record, a gross margin of roughly 20% or more after the financing cost, and finished goods ready to resell. Your own credit and time in business matter less, which is why startups with a big first order use it.

• Declined most often: margins under 15%, orders for services or custom manufacturing where you add work before delivery, suppliers the financer cannot verify, and customers who can return goods freely.
• Orders from consumers or small untested buyers are usually passed over.

What does purchase order financing really cost?

A typical example: you win a $300,000 order and your supplier cost is $200,000. The financer pays the supplier at 3% per 30 days. The goods ship and you invoice 45 days later, so the fee is 4.5%, or $9,000. A factor then buys the $300,000 invoice at 1.5% for the 30 days your customer takes to pay, another $4,500. Total cost is $13,500, and you keep $86,500 of your $100,000 margin.

Delays are expensive: every extra month adds 3% of $200,000. Setup, letter of credit and inspection fees add $1,000 to $5,000. Our guide to APR versus factor rate shows why a small monthly fee is a high annual rate.

How do you qualify, and what documents do you need?

The core file is the transaction: the customer's purchase order, your quote to the customer, the supplier's quote or pro forma invoice, the supplier's details and history, a cost breakdown showing your margin, shipping and delivery terms, and any inspection or quality requirements. Add your formation documents, bank statements and, for larger deals, financial statements.

Our document checklist covers the business side. The financer will verify the purchase order with your customer and check the supplier, so warn both. Orders with clear acceptance terms and no return rights move fastest; a buyer who can cancel late is the main reason a deal is declined.

How long does purchase order financing take?

Typically one to three weeks for the first transaction, covering verification of the customer and supplier, the factoring setup and the legal agreements. Repeat orders with the same customer and supplier often fund in a few days.

The supplier's production and shipping time then sets the cycle, and the financing clock runs the whole way; a 30 day sea freight leg is a month of fees. Apply as soon as you have the purchase order in hand, not when the supplier's deposit is due. See how long business loans take.

When should you choose something else?

Choose inventory financing if you are buying stock to sell over time rather than for one confirmed order, because the lender does not need a buyer in place. Choose a line of credit if your business qualifies, since drawing on a line to pay a supplier costs a fraction of purchase order financing.

Skip it on thin margin orders. After 4% to 8% of supplier cost in fees, a 15% margin becomes almost nothing, and one delay turns the order into a loss. Sometimes the right move is a deposit from the customer instead.

How do you apply for purchase order financing?

Apply once on this site with the purchase order and supplier quote, and your application reaches purchase order financers and the factoring companies they work with, alongside lines of credit if you can qualify for one. It is free for your business, and we are paid the same whichever lender you choose. You can also ask your AI assistant to apply through our MCP server; it reads the order documents, fills the application and submits it.