The short answer
Very few lenders sell a single product called “PO finance.” In practice it is two facilities working as a pair: a trade facility that pays your supplier, and a debtor facility that advances against the invoice you raise once the order is filled. The debtor facility is what repays the trade facility, which is why a lender looks at the whole cycle as one deal rather than two separate applications.
Both sides typically advance up to about 80%, of the supplier cost on the trade side, and of the invoice value on the debtor side, and the whole loop needs to close inside around 120 days for the arithmetic to work: pay the supplier, deliver the order, invoice your customer, get paid. What a trade facility and a debtor facility look like on their own, including how each is priced, is worth a guide of its own. This one is about how the two work together to fund a single order.
How the money actually moves
- The trade facility pays your supplier. Up to roughly 80% of what the goods or materials cost, paid directly to the supplier or reimbursed to you against their invoice. You, or a deposit from your customer, typically cover the balance.
- You deliver and invoice your customer. The order is filled, the goods ship or the work is completed, and you raise the invoice on your normal trading terms.
- The debtor facility advances against that invoice. Up to roughly 80% of its value, paid out once the invoice is verified with your customer. Most of that advance goes straight to clearing the trade facility.
- Your customer pays the invoice. When they settle, on their normal 30, 60 or 90-day terms, the remaining balance releases to you once fees are deducted.
Because two facilities and two lots of fees sit inside the one cycle, PO finance costs more than a simple working capital facility would. It is priced against the realistic alternative, usually turning the order down or self-funding it and running the business short of cash for months, not against a low-cost overdraft.
What lenders want to see
An established business
If you have trading history, lenders assess the business much as they would for any facility: at least a full year of trading, a profit and loss statement, a balance sheet, an aged payables and aged receivables listing, a cashflow forecast covering the order, and the directors’ personal assets and liabilities. A track record of filling similar orders and being paid on time matters more here than the size of this particular PO.
A new company with its first PO
If the company is new and this purchase order is effectively the business so far, lenders cannot assess a trading history that does not exist yet, so they look at two things instead. The first is the strength of the customer who issued the PO: the invoice is only as good as the business that has to pay it, so a well-known, credit-checked customer carries the deal. The second is whether the directors own real estate, which gives a lender something to fall back on when the company itself has no track record to lean on.
Where this fits, and where it doesn’t
- Good fit: a single order, or a repeat order from a known customer, that is larger than your normal working capital can absorb, with margin enough to cover two lots of finance fees.
- Not a fit: thin-margin orders where the finance cost eats the profit, or a customer who won’t confirm the order directly to the lender.
- Worth checking first: whether a simple overdraft or line of credit against your existing trading covers the gap. PO finance earns its cost on orders your normal facilities can’t stretch to.
The PO itself has to hold up
Lenders will usually want to confirm the order directly with your customer before releasing funds against the trade facility. A PO that can be cancelled without cost, or a customer who won’t take a call to confirm it, makes the deal much harder to fund regardless of how good the rest of the file looks.
A quick decision test
- Is the gap between paying your supplier and being paid by your customer bigger than your normal working capital can cover? PO finance is built for exactly this.
- Can the whole cycle close inside around 120 days? If not, most lenders will not fund it as PO finance.
- Is your customer a business that will confirm the order and pay reliably? That standing carries as much weight as your own trading history, sometimes more.
- New company, no trading history? Expect the conversation to centre on your customer’s credit and whether the directors own property.
Tell us about the order, who it’s from, and what it costs to fill, and we’ll tell you honestly whether it stacks up and what a lender will want to see.