Purchase Order Funding 101

A company may have Purchase Orders by which it is to supply GOODS to another business. However, the company does not have enough liquid capital to begin manufacturing the goods. In this case, the company might use PO Funding. Note that PO Funding is only available for a manufactured product. It is NOT available for the supply of services.

PO Funding is short term funding. The company submits the PO and a manufacturing costs breakdown to the funding source. The funder will advance a portion of these costs to the company (or to the company's supplier of the manufactured product).

When the goods are delivered to the company's ultimate buyer, an Invoice is generated. This Invoice will immediately be subjected to Factoring. The funding source of the PO is repaid the advance plus his fee by the funding source who factors the Invoice.

PO Funding is regarded as high risk since the goods have not been manufactured - or are only partially complete. Factoring is always involved in PO Funding. The entire transaction of PO Funding and Factoring can be done by a single funding source, or can be split between a PO funder and a Factor.

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