What is purchase order finance?

Purchase order finance solves a specific and painful problem: you have won an order you cannot afford to fulfil.

The lender pays your supplier so the goods can be produced or bought. You deliver to your customer and raise the invoice. When that invoice is paid, the lender takes back what it advanced plus its fee, and the balance is yours.

The part that surprises people

On most business funding, the lender is assessing you. Here, the assessment is largely about the company that placed the order, because they are ultimately the source of repayment.

That changes who can access it. A young company holding a firm order from a large, creditworthy customer can sometimes get purchase order finance when a conventional loan would be refused outright. Your trading history matters less than your customer’s ability to pay.

What you need for it to work

• A confirmed order. A firm written commitment to buy. Quotes, forecasts and verbal assurances cannot be funded, because there is nothing enforceable behind them.
• A creditworthy customer. Large retailers, established corporates and public bodies attract the best terms.
• Enough margin. The finance cost has to sit comfortably inside your gross profit on that order. On thin margins it often does not work, and we will tell you so.
• The ability to deliver. Lenders want evidence you can actually fulfil. Funding does not fix an operational gap.

What it is not

It is not a general working capital facility. It is tied to one specific order, it self-liquidates when that order is paid, and the money goes to your supplier rather than into your account.

If your problem is waiting on invoices you have already raised, you want invoice finance instead. Many businesses use both on the same contract, one to make the goods and the other to bridge the payment terms.