Also known as: PO financing, purchase order funding
Purchase order financing is funding that pays a business's supplier directly so it can fulfill a large customer order it doesn't have the cash to produce or buy. The financier covers the supplier cost — the goods are made or delivered, the customer is invoiced and pays, and the financier is repaid from that payment, keeping a fee. It lets a business accept an order bigger than its working capital would otherwise allow, without turning the deal away or straining cash.
A business receives a large purchase order but lacks the cash to pay its supplier or manufacturer to fulfill it. A PO financier steps in and pays the supplier directly (often via a letter of credit or direct payment). The supplier ships or produces the goods, the business delivers to its customer and invoices them, and when the customer pays, the financier takes its advance plus fee and remits the rest. It bridges the worst gap in a fast-growing product business: the money going out for materials before any money comes in.
The two solve different stages of the same cash-flow cycle. Purchase order financing funds the cost of fulfilling an order before it ships — it pays suppliers. Invoice factoring advances cash against an invoice that has already been issued — it bridges the wait for a customer to pay. A business with a big order and an empty bank account may use PO financing to produce the goods and then factor the resulting invoice to get paid sooner, chaining the two together.
Purchase order financing is what lets product-based businesses — wholesalers, distributors, manufacturers, importers — say yes to orders that would otherwise be too big to fund, so it's a high-value product for brokers serving any business whose growth is capped by the cash needed to fill orders.
It's funding that pays your supplier directly so you can fulfill a large order you couldn't otherwise afford. The goods ship, you invoice the customer, and the financier is repaid from the customer's payment minus a fee — letting you accept orders bigger than your cash on hand.
PO financing pays suppliers to fulfill an order before it ships; invoice factoring advances cash against an invoice already issued. Businesses often chain them: use PO financing to produce the goods, then factor the resulting invoice to get paid sooner.
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