Purchase Order Financing: How It Works, Costs, and When Invoice Factoring Fits Better
PO financing pays suppliers so you can fill confirmed orders. See how it works, typical costs, vs invoice factoring, and when Specie fits.
Purchase Order Financing: How It Works, Costs, and When Invoice Factoring Fits Better
A large buyer sends a firm purchase order. Your supplier wants cash before production or shipment. Your customer will pay only after delivery — often Net 30, 60, or 90. That gap is where purchase order financing sits.
For importers, exporters, distributors, and finance teams: what the product is, how cash moves, what drives cost, how it differs from invoice factoring, and when each tool fits.
Specie (Untappd Labs Inc. DBA Specie) is not a bank and does not hold deposits. Payment services run through regulated ramping partners. Specie does not operate as a purchase-order financing lender. See How Does Specie Work?.
What purchase order financing is
In market language, PO financing (also called PO funding) is short-term capital used to pay suppliers so you can fulfill a confirmed customer order. The funder typically pays the supplier directly against the PO and related cost documentation; repayment comes from the buyer’s payment once goods are delivered and invoiced (Forbes Advisor, NerdWallet).
The Global Supply Chain Finance Forum (GSCFF) — BAFT, FCI, ICC, ITFA, and the EBA — defines Pre-shipment Finance as a loan from a finance provider to a seller to source, manufacture, or convert goods for delivery to a buyer. Listed synonyms include Purchase Order finance, packing credit, and contract monetization. A purchase order from an acceptable buyer (or an LC / Bank Payment Obligation) often motivates the facility, alongside the seller’s ability to perform.
Term | Plain meaning |
|---|---|
PO / purchase order financing | Funding to pay suppliers against a confirmed customer order |
Pre-shipment finance | GSCFF umbrella that includes PO finance |
Borrower / seller | The company that received the customer PO and needs supplier cash |
Finance provider | Bank or specialty funder that pays the supplier and collects from the trade |
PO financing is usually transaction-tied: it funds a specific order’s supplier cost, not general payroll or rent. Structures vary — direct supplier payment, staged deposits, cash against documents, or an LC (Trade Finance Global).
How the cash moves
Customer issues a confirmed purchase order for goods you resell or have made.
Your supplier quotes the cost to produce or supply those goods. Payment is due before the customer pays you.
You apply for PO financing with the PO, supplier quote, and buyer details.
The funder underwrites mainly the buyer’s credit, your performance history, the supplier’s reliability, and margins on the deal.
On approval, the funder pays the supplier (often up to a high share of supplier cost on strong files; some deals leave a residual for you to cover).
Supplier produces and ships — sometimes direct to the customer, sometimes via you.
You invoice the customer after delivery / acceptance.
Customer payment settles the facility (often paid to the funder or rolled into invoice finance). The funder deducts fees and releases your remaining margin.
Stage | Who pays whom | Effect |
|---|---|---|
Pre-shipment | Finance provider → supplier | Goods can be produced / procured |
After delivery | You invoice the buyer | Receivable exists |
Settlement | Buyer → finance provider (typical) | Facility repaid; you keep net margin after fees |
GSCFF notes that after shipment the same provider (or another) may offer post-shipment techniques such as receivables discounting or payables finance until the buyer pays. Trade desks often describe the same handoff as “PO finance paid down by invoice finance” (Trade Finance Global).
Cross-border sellers still price FX and payout rails into the all-in number (transfer costs).
What it costs
There is no single world tariff. Treat published bands as orientation, then read your rate card.
Consumer and SME guides often describe PO financing fees as roughly 1% to 6% per month (or per 30-day period) on funded supplier cost, rising the longer the buyer takes to pay (Forbes Advisor, NerdWallet). The same sources note annualized costs can land around ~20–50% APR depending on hold period. Secondary lender posts cite similar 1.5–6% period ranges for PO deals and often lower period fees for invoice factoring — marketing orientation only, not Specie pricing.
Illustrative only: supplier cost funded at $100,000; fee 2% per 30 days. If the buyer pays in 30 days, fee ≈ $2,000. If payment takes 60 days, fee ≈ $4,000 (same structure as NerdWallet’s worked example). Recalculate on the actual offer.
Rate drivers: buyer credit quality, your fulfillment track record, supplier reliability, deal margin, currency and country, days from funding to settlement, and whether the facility rolls into invoice finance. Thin margins plus long Net terms can erase the reason you took the order.
Purchase order financing vs invoice factoring
PO financing | Invoice factoring | |
|---|---|---|
When it funds | Before / during fulfillment (pre-shipment) | After delivery and invoicing (post-shipment) |
What gets funded | Supplier cost to fill a confirmed PO | Eligible receivables / invoices |
Main job | Get goods made and shipped | Get paid before the buyer’s due date |
Typical fee shape | Period % on funded supplier cost (often higher risk) | Discount / fee on invoice face (often lower than PO on like terms) |
Best when | You cannot pay the supplier without outside cash | Goods shipped; cash stuck in AR |
Invoice factoring (closely related to GSCFF receivables discounting) advances cash against invoices you have already raised. It does not replace PO financing when the blocker is paying the factory or wholesaler before you have a receivable.
Many growing traders use both: PO financing to get the order out the door, then factoring (or receivables discounting) to cover the wait until the buyer pays and to take out the more expensive pre-shipment line. If the order is already shipped and invoiced, adding PO financing is usually the wrong tool — factoring or other cash-flow tools fit better.
When PO financing fits — and when factoring fits better
Lean toward PO financing when you have a creditworthy confirmed PO, adequate margin after fees, a supplier that will accept funder payment mechanics (wire, LC, staged payments), and no cheaper bank or buyer program that covers pre-shipment needs.
Lean toward invoice factoring when goods are delivered and accepted, you need liquidity across many buyers, there is no PO facility (or you were declined), or the only gap left is Net terms after shipment. Supplier-controlled factoring also helps when you are not invited into a buyer supply chain finance / reverse factoring program.
Neighbors: open account still needs a funding overlay when terms stretch; an LC can secure payment but rarely pays your upstream supplier unless structured (red/green clause or a separate pre-shipment line); buyer-led SCF / reverse factoring usually starts only after invoice approval, so it rarely fills a pre-production hole.
Primary risk on PO / pre-shipment facilities is performance risk — you must deliver conforming goods — plus buyer payment risk after delivery (GSCFF). Factoring risk concentrates on invoice validity, dilutions, and buyer credit once the receivable exists.
How Specie fits
Specie moves money and helps manage receivables for trade businesses. It is not a purchase-order financing lender, deposit bank, or pre-shipment packing-credit bank.
Use Specie for payments and FX around the order cycle, and for international invoice factoring once goods are shipped and invoiced — including when a PO funder expects receivables funding to take out the pre-shipment line. If a bank or specialty PO lender already covers supplier cost on acceptable terms, use that for the pre-shipment leg.
Next Step
Map the gap first: supplier payment before shipment, or buyer payment after invoice. Price the all-in cost (fees, days outstanding, FX, and payout speed) against the margin on the order.
Need cash after shipment across a book of buyers, or payments and FX that keep the financing gain? Talk to Specie or get a quote for settlement and international invoice factoring.
Untappd Labs Inc. DBA “Specie” is not a bank and does not hold deposits. Specie is not a purchase-order financing lender, pre-shipment packing-credit bank, or deposit-taking institution. Payment services are provided through regulated ramping partners. All transactions are subject to applicable laws, regulations, and compliance requirements, including KYC, AML, and sanctions screening. Factoring availability, fees, and advance rates depend on underwriting and eligibility. PO financing and pre-shipment facilities are offered by banks and specialty finance providers under their own terms; Specie does not originate those facilities. Always confirm structure, pricing, and documents with the relevant providers and your advisors.
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