AR Financing vs. PO Financing: Which Do You Need?

Which problem are you actually trying to solve?

Both products address the same underlying condition — cash arrives later than it is needed — but at opposite ends of the order cycle, and they are not interchangeable.

If your supplier wants a deposit or payment before shipping, and you cannot cover it from cash on hand, you have a pre-delivery funding gap. Nothing has been earned yet, there is no invoice, and no receivables facility will advance against work you have not performed. That is purchase order financing.

If the goods are delivered or the work is complete, you have issued an invoice, and the customer is on 30, 60 or 90-day terms, you have a post-delivery funding gap. The money is earned and legally owed; you are simply waiting. That is accounts receivable financing.

Getting this wrong wastes weeks. Applying for AR financing against an order you have not yet fulfilled will not work, because there is no eligible receivable to advance against. Applying for PO financing on an invoice that is already issued is equally pointless — the risk the PO funder prices for, that the goods may never ship correctly, has already passed.

What does each one fund, and when?

PO financing pays your supplier directly, usually by wire or by issuing a letter of credit, for up to 100% of verified supplier cost. The funds never pass through your operating account, which is deliberate: the funder is paying for a specific, inspectable set of goods tied to a specific order.

AR financing advances a percentage of the invoice to you, in cash, to use for anything — payroll, fuel, rent, the next order. It is the general-purpose working-capital product of the two.

Which is cheaper, and why is PO financing more expensive?

AR financing is materially cheaper, and the reason is risk sequencing. When a receivables funder advances against an invoice, the work is done, the goods are accepted, and the only remaining question is whether a creditworthy buyer pays. That is one risk, and it is measurable against commercial credit data.

A PO funder carries considerably more. The supplier might ship late, ship short or ship the wrong specification. The goods might fail inspection. The buyer might reject the delivery or exercise a cancellation right. Freight might be delayed at a port. Only after every one of those risks has been cleared does the deal become an ordinary receivable. Pricing at 1.5%–6% per 30 days reflects that stack of performance risk, not just buyer credit risk.

Exposure also runs longer. A PO deal is typically outstanding from supplier payment through production, shipping, delivery and then the customer's payment terms — so a 45-day production cycle followed by 45-day terms is 90 days of financing cost, not 45.

What does a financed order actually net me?

The only test that matters for a PO deal is whether the gross margin comfortably covers the financing cost and still leaves a profit worth the operational effort. Run the arithmetic before you accept the order, not after.

Who qualifies for which?

AR financing has the broader eligibility. Any US-registered business invoicing commercial or government customers for completed work can usually be considered, including service businesses with no physical product at all.

PO financing is narrower by design, because the funder is buying into a physical transaction it has to be able to inspect and control.

• AR financing: you sell B2B or B2G, invoices are for completed work or delivered goods, and your customers have reasonable commercial credit.
• AR financing: no unresolved lien that prevents the funder taking the position it needs on your accounts.
• PO financing: a confirmed, non-cancellable purchase order from a creditworthy buyer.
• PO financing: you resell finished goods rather than running heavy in-house manufacturing.
• PO financing: gross margin of roughly 15% or more, and a supplier with a verifiable delivery record.
• Both: a US-registered entity, clean documentation, and invoices or orders free of competing claims.

Can I use both on the same order?

Yes, and for product businesses this is the normal pattern rather than the exception. A combined PO-to-AR facility funds the supplier before delivery and then rolls into a receivables advance at invoicing, so one transaction is covered end to end by one funder. Keeping both legs with the same funder avoids an intercreditor negotiation over who has priority on the resulting invoice.

1. 1Confirm the order. A written, non-cancellable purchase order from a customer whose credit the funder can verify.
2. 2Verify the supplier and the margin. The funder reviews the supplier quote, references and delivery record, and checks that the margin supports the financing cost.
3. 3Supplier is paid. Payment or a letter of credit goes directly to the supplier for up to 100% of cost. Goods are produced and often inspected before shipment.
4. 4Deliver and invoice. Goods ship to your customer. You issue the invoice, with proof of delivery or acceptance attached.
5. 5Convert to AR financing. The invoice is advanced at 80%–95%. The PO facility is repaid from that advance and the deal becomes an ordinary receivable.
6. 6Customer pays, reserve releases. On payment, the reserve is released to you net of fees, and your margin lands.

What most often derails one of these deals?

On the PO side, the problems are almost always documentary or operational rather than financial. The order turns out to be a forecast or a blanket agreement rather than a firm, non-cancellable purchase order. The customer's terms include a cancellation right or an inspection clause broad enough to make acceptance uncertain. The supplier has no track record the funder can verify, or wants payment terms the funder cannot work with. Margins look adequate on the quote but shrink once freight, duty, insurance and inspection costs are loaded in.

On the AR side, the common blockers are eligibility rather than credit. Invoices raised before delivery or acceptance are not fundable. Retainage, progress billings awaiting sign-off and amounts in dispute are typically excluded or held back. A customer with a right of offset against money you owe them reduces the net collectible balance. An existing blanket UCC filing from another lender has to be subordinated or paid off before anything funds.

Both are solvable, and most are solvable faster if they surface at the start. The single most useful thing you can do before applying is to assemble the paperwork a funder will ask for and read it the way they will: is this order genuinely firm, and is this invoice genuinely owed, today, without conditions?

Which should I apply for?

Start from the calendar, not the product sheet. Identify the exact date cash has to leave your business and the exact date it comes back, then pick the product that spans that gap.

• Apply for PO financing if a supplier deposit or payment is blocking an order you have already won.
• Apply for AR financing if the work is done, the invoice is out, and the wait for payment is the problem.
• Apply for both if you are repeatedly winning orders larger than your working capital and then waiting 30–90 days to be paid for them.
• Apply for AR financing alone if you sell services, or if your product cycle is short enough that supplier terms already cover it.
• If margins are below roughly 15%, look hard at whether PO financing makes the deal worth doing at all.