Definition: PO financing is a short-term commercial finance option that provides capital to pay suppliers upfront for verified purchase orders. Businesses avoid depleting cash reserves or declining an order because of cash flow challenges. It allows companies to accept unusually large orders and adjust the loan basis up/down quickly to meet needs. If order volume drops, there’s no long-term commitment so they can stop using it at any time.
Who qualifies for PO Financing? PO financing is designed for growing businesses that want to fulfill large orders. They have limited access to working capital and/or irregular cash flow. The types of businesses that usually qualify include:
- Distributor
- Wholesaler/reseller
- Importer/exporter
How does it work? Your business receives a large PO from a new or existing customer. Your supplier needs upfront payment, but the customer invoice won’t be paid for 60-90 days after shipment is received. This creates a classic working capital gap. We will verify the PO and immediately make an advance (up to 100%) of the purchase order amount and pay your supplier directly.
How much does it cost? The cost of financing purchase orders varies for each transaction based on risk. The monthly percentage is based on the lender’s underwriting factors, such as:
- paying upfront for goods
- delivery according to contract
- waiting 60 – 90 days from delivery of goods to get paid
How long does it take? From the time you submit the application and due diligence materials, it takes approximately a week to underwrite and another week to establish the funding and repayment mechanism. We have funded transactions in as quickly as 10 business days.
- Submission/Approval Process? Initial submission for qualification consists of:
- Completed and signed IHC application
- Current financials including AR aging and AP
- Purchase Order/Delivery contract with end buyer
Once this is all received and evaluated, IHC will issue the client a term sheet and closing list.
