The fee looks small and annualizes high — but the number that decides the deal is what it takes out of your margin. Worked at a healthy margin and a thin one.
June 12, 2026 · Relief Capital Funding Desk
Purchase order financing pays your supplier so you can fulfil an order you couldn't otherwise afford to fulfil. A customer sends you a confirmed purchase order for $280,000 of goods. Your supplier wants $200,000 before shipping. You have $60,000 in the bank. Rather than turn the order down, a financier pays the supplier directly, the goods ship to your customer, you invoice, and the arrangement settles when payment arrives. It's transaction financing in the purest sense: the deal is the collateral, and the money never really touches your account.
Because the transaction is the security, underwriting centres on the parties rather than on your balance sheet. Is the purchase order genuinely confirmed and non-cancellable? Is your customer creditworthy enough to pay a $280,000 invoice on terms? Is your supplier reliable enough to actually ship? A young company with modest financials and a purchase order from a national retailer is a strong candidate. An established company with an order from a shaky customer is a weak one. That inversion is why this product exists at all — it lets a small business punch far above its balance sheet. It's also why the first questions on a PO financing call are about other people. Who is the customer, what are their payment terms, and have they bought from you before? Who is the supplier, and have they delivered at this volume? Owners expecting to be asked about their own revenue are often surprised that it comes up third, after both counterparties have been discussed in detail.
It's also usually half of a pair. Purchase order financing covers you from supplier payment to shipment; invoice factoring covers you from invoice to customer payment. Many transactions use both, with the factoring advance retiring the PO facility once the goods are delivered and invoiced. If you only arrange the first half, you can find yourself owing the financier while your customer takes sixty days, so it's worth mapping the entire cash cycle at the outset rather than solving the first gap and discovering the second.
Two minutes with the desk beats two hours of tabs
Have a confirmed PO in hand? Read the desk the order value, the supplier cost, and the customer, and you'll know quickly.
Typical fee on the supplier cost
2 – 10%
Indicative; the fee a lender charges scales with the transaction's length and risk.
Typical order size financed
$25,000 – $2,000,000
Indicative; final terms depend on lender and profile.
Run it through the margin, not through an interest rate. On the $200,000 supplier cost above, a 5% fee over roughly sixty days is $10,000. If the order sells for $280,000, your gross margin is $80,000 and the financing consumes 12.5% of it, leaving $70,000 on a deal you couldn't have taken at all. That is a straightforwardly good trade. Now change one number: if the same order sells for $230,000, the margin is $30,000 and the same $10,000 fee eats a third of it. The transaction is still profitable, but you've done $200,000 of work for $20,000, and any delay or dispute erases the rest.
For completeness: 5% over sixty days is roughly 30% on an annualized basis, and that figure is worth knowing when you compare this against a line of credit you might qualify for. But annualizing is the wrong primary lens here, because you aren't borrowing for a year — you're buying the ability to complete one transaction, and the correct comparison is the fee against that transaction's margin. Fees also scale with duration: a deal that takes ninety days rather than sixty costs meaningfully more, which makes your supplier's lead time and your customer's payment terms real pricing inputs, not logistics details. Before committing, build the actual timeline in days — supplier production, shipping and customs if the goods are imported, delivery, invoicing, and then your customer's terms. Add two weeks of slack, because something always slips. If that total pushes the fee past a fifth of the gross margin, the sensible response is to renegotiate deposit terms with the supplier or shorter payment terms with the customer, rather than to accept the financing cost as fixed.
Most PO transactions naturally pair with Invoice Factoring, which advances against the invoice once you've shipped and typically costs less per day than the PO facility it retires — arranging both up front is usually cheaper than arranging them in sequence. If you're buying stock speculatively rather than against a confirmed order, Inventory Financing is the correct instrument, since PO financing requires a firm order to exist. And if you do this regularly at a predictable size, a Business Line of Credit is materially cheaper than paying a per-transaction fee every time, provided your profile supports one.
The clearest way to think about purchase order financing is as a tool for growing past your own balance sheet, one order at a time. It's expensive per transaction and cheap relative to declining the order, which is why the businesses that use it well tend to graduate out of it — two good years of financed orders builds the trading history and the retained profit that make a cheaper facility available. Using it as a permanent operating model, on thin margins, with the same customer every quarter, is the pattern that quietly caps a business rather than growing it.
Send the purchase order
Email the PO, the supplier quote, and your sell price — the desk will show you what's left after financing.
Often yes, at least partially, since payment may be directed to the financier and the arrangement can involve verifying the order directly with your customer. Large commercial and government buyers deal with this constantly and generally treat it as routine supplier practice rather than a warning sign. If discretion genuinely matters for a particular relationship, raise it early, because it affects which financiers can work on the deal.
This is the risk the whole structure is built around, which is why a confirmed, non-cancellable order and a creditworthy customer are non-negotiable requirements. If a customer cancels or refuses delivery, you're left owing for goods you now have to place elsewhere. Read the cancellation terms in your own customer agreement before financing against it — the strength of that clause is doing more work than you might think.
Sometimes, but it's harder and priced accordingly. Straightforward finished-goods transactions — you buy, they ship, you deliver — are the natural fit. Where raw materials have to be converted, there's production risk between the money going out and the goods existing, and fewer financiers will take it. Work-in-progress deals are usually possible with a strong customer and a proven production record, but expect a smaller advance and a higher fee.
“If the margin cannot carry the fee, the order is not worth financing.”
See what the order leaves you
A few questions about the order, the supplier, and your margin, and you'll see whether the transaction is worth financing.