Definition
Funding that pays a supplier so a business can fulfill a confirmed customer order.
Why it matters
It's repaid when the end customer pays.
Where it shows up in a deal
A PO financing file opens with a confirmed, non-cancellable order and a cost breakdown showing the margin. The funder pays your supplier directly or issues a letter of credit, the goods ship to your buyer, and the resulting invoice is financed so the PO advance can be repaid. You are pricing two consecutive stages, not one.
What it affects
- Funds go to the supplier, never to your operating account, so this is not working capital.
- The whole structure depends on an AR facility being in place to repay the PO advance at delivery.
- Gross margin has to absorb two stages of fees plus freight, duty and any delay.
- Supplier slippage keeps fees accruing at the higher PO rate, which is where thin deals are lost.
A worked example
A $180,000 order with $135,000 of supplier cost carries a $45,000 margin (25%). A PO stage at 3% per 30 days on $135,000 for 30 days costs $4,050; factoring the $180,000 invoice at 1.75% for 30 days costs $3,150. Total financing is $7,200, leaving $37,800 of the margin.
The common mistake
Related terms
- Purchase OrderA buyer's document authorizing a purchase at agreed prices and quantities.
- Letter of CreditA bank's guarantee to pay a supplier once agreed shipping documents are presented.
- Invoice FactoringSelling unpaid invoices to a factor for an immediate advance.
- Supply Chain FinanceA buyer-led program that lets suppliers get paid early at the buyer's credit rate.
Questions about how purchase order financing affects your facility?
Call (929) 658-8087 or request a written quote — no obligation, no credit impact.
