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Purchase order financing for businesses

Purchase order financing for businesses

Tackle the biggest projects and orders you've ever seen.

How it works

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Available Capital

$100,000 to $20 million

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Time to Fund

2 to 3 days

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Interest Rates

1% and up per month

Learn more about purchase order financing

Amerifi helps small businesses like you

with purchase order financing solutions that provide the financial resources to help you fulfill the biggest project or order -- so you can sign an even bigger deal next time.

You’ve just signed a huge contract. The whole team is celebrating. Your business could be transformed overnight... if only you had the resources to keep every promise you’ve just made.

Many startups and small business owners face situations like this, where they’ve promised more than they have the means to deliver. Successful business owners find ways to keep those promises.

Purchase order financing, also called PO financing or purchase order funding, can mean the difference between keeping your promises and missing out on the loyalty of a vital customer.

With this form of business funding, you’re essentially enlisting a lender as your semi-silent partner to get what your business needs to complete the deal.

A purchase order financing company that approves your business’ PO financing application will pay your suppliers directly for whatever goods or products your business needs to provide to its customers. This might involve an immediate payment or the opening of a letter of credit between lender and supplier, depending on several factors.

You’ll sometimes pledge to repay the financed amount by allowing the PO financing company to collect payments directly from your customers, but this isn’t an ironclad condition of PO financing.

Purchase order financing is not equivalent to a term loan, working capital, or a line of credit. It’s a highly specific form of business funding that’s only available to product-focused companies with creditworthy customers placing high-value orders -- and it’s only usable to pay for the goods you need to buy or have made, so you can deliver them to your customers.

PO finance works for many businesses that need cover short-term cash flow problems while serving important customers. However, most businesses seek out purchase order financing solutions after they've already gotten an estimate or invoice from their suppliers to fulfill customer orders.

You might already know, before getting a supplier’s invoice, that your business won’t be able to pay it in full from its current cash flow. However, it’s a lot harder to secure PO financing if you can’t show a lender exactly how much it’ll cost you to fulfill that order.

Purchase order financing and invoice factoring seem very similar at first glance, which is why many small businesses that apply for funding backed by specific orders or contracts often get them mixed up.

Both involve enlisting a financing company to deal with large orders or accounts receivable, and in both cases, the customer pays their invoices directly to the financing company -- usually, but not always.

PO finance tends to come with slightly higher fees due to the less complete nature of a purchase order transaction, compared to an invoice for finished goods or delivered products. However, it can be a better option than invoice factoring for product-focused B2B businesses, such as manufacturers or wholesalers.

Click here to learn more about invoice factoring.

In fact, some businesses combine purchase order financing with invoice factoring, pledging both the unfulfilled and the completed sides of the same transaction.

This can work well when the invoice has extended repayment terms, and obtaining lower-cost invoice factoring at the end of a transaction can lower a business’ total transaction costs more than would be possible with PO financing alone.

An experienced financing or factoring company won’t push you into taking on more financing than it thinks you can handle. You'll also get a clearer understanding of your options when you talk to someone who really knows the ins and outs of small business funding -- like an Amerifi funding specialist.

Purchase order financing is harder to obtain than invoice factoring.

Not only do you have to secure purchase orders with highly specific terms, you’ll also depend on the business credit histories of both your customer and your supplier for approval.

The nature of purchase order financing tends to restrict it to businesses that deal with physical products, particularly unmodified products ordered from a manufacturer and delivered directly to a customer. The minimum value of the purchase order must also be quite high -- $100,000 or more -- to obtain financing, which tends to restrict this form of funding to businesses serving very large customers.

Direct manufacturers and service providers, such as construction contractors, can also obtain purchase order financing, or something similar. The terms between a direct manufacturer and a lender will be different than those between a lender and a wholesaler or reseller.

Service providers seeking financing to fulfill large contracts are typically further restricted by the type of customer they’re contracted to. In some cases, government contract financing may be the only type of financing available to service providers before they’ve delivered their service.

This type of financing will only help businesses fulfill contracts for products or services with federal, state, or local governments, but due to the size of many government contracts, it can be a great option for ambitious government contractors competing for big jobs.

Talk to us today about your best financing options for converting commitments with customers into cash.

Purchase order financing often works well for these types of businesses:

RETAILERS AND WHOLESALERS


The nature of purchase order financing restricts its effective use to a few types of businesses. Obtaining a standard type of purchase order financing requires very large orders, received from reputable customers and fulfilled by reputable manufacturers.

In most cases, these criteria will be met by businesses that sell huge volumes of inventory to certain customers, or by businesses that sell extremely high-value inventory such as specialized IT hardware or industrial components.

A wholesaler with a purchase order from Walmart or Best Buy is more likely to secure financing than one supplying a recently-established local retailer like Wally’s Mart or Bob’s Buys.

Most retailers eligible for purchase order financing operate in the B2B space. There aren’t many products you can sell to consumers for a high enough price to qualify for this form of funding that aren’t already better served by other types of financing, particularly through consumer-oriented financing options.

Contact us today to see if your purchase orders are eligible for financing.

Not sure if purchase order financing is right for your retail or wholesale company? Check out our retail business resource page for more funding options and business loans.

HEALTHCARE AND MEDICAL


Medical service providers rarely run into situations where purchase order financing is the best funding option. However, medical supply or equipment providers may often encounter purchase orders that they don’t have enough cash on hand to fulfill.

Younger medical supply businesses or medical equipment vendors may turn to purchase order financing to help them compete at the scale of large established competitors, before it’s possible to build up the financial resources to do so alone. Smaller businesses in this space, at any age, can utilize purchase order financing to provide the push needed to reach a new stage of growth and operational scale.

A company serving the medical sector is likely to be eligible for purchase order financing, if their purchase orders are large enough to qualify, for several reasons.

First, few buyers of medical supplies or equipment will be ordering enough from you to qualify unless they’re backed by strong business credit and a solid business track record.

Second, manufacturing specialized medical equipment requires specific and specialized processes, and it’s often backed by patents as well. A business with the tools and expertise to develop and manufacture this sort of specialized product isn’t likely to be an unknown or a startup unless it happens to be backed by a billionaire.

Not sure if purchase order financing is right for your healthcare company? Check out our medical business resource page for more funding options and business loans.

SERVICE PROVIDERS


Purchase order financing is designed to support product-focused businesses.

If you provide services as a government contractor, you may be eligible for a similar form of funding known as government contract financing. This form of financing covers the provision of both goods and services to federal, state, or local government agencies.

Your funding partner at Amerifi will be able to guide you to the best form of financing available for your situation. Reach out to us today to get your business funding application started.

Not sure if government contract financing is right for your service provider? Check out our service business resource page for more funding options and business loans.

Advantages of purchase order financing

  • Far more accessible than a bank loan
  • Doesn’t require a personal guarantee
  • Available to (some) startups and new businesses
  • Allows you to handle larger orders or deals than you otherwise could

Drawbacks of purcase order financing

  • Tied to two other business’ creditworthiness
  • Fees can be on the high side
  • You probably won’t get 100% financing
  • You may not have control over collecting payments

If you have...

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Time in business

3+ months

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Revenue

$10,000+ per month (annual revenue of $120,000)

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Credit score

500+

You could be eligible for up to $20 million in purchase order financing today!