Purchase order financing is a process by which a company can finance the purchase of goods and materials. This is done by securing a loan based on the purchase order itself. The financing company will look at the creditworthiness of the company placing the order, as well as the credit of the supplier. This type of financing can be helpful for companies that need to purchase goods quickly, but may not have the cash on hand to do so.

The Steps Involved In The Purchase Order Financing Process

The process of purchase order financing typically involves four steps:

The company seeking financing submits a purchase order to the financing company.
The financing company reviews the purchase order and determines if it is eligible for financing.
If the purchase order is approved, the financing company advances funds to the supplier.
The supplier ships the goods to the company and the debt is repaid to the financing company.

How Do Get a Purchase Order Financed?

The purchase order financier is typically a bank or finance company that specializes in providing financing for the purchase of goods and services. This entity will provide financing to the purchaser of the goods or services, often in the form of a loan. The financier – whether it’s a bank, private lender, or other financial institution –  will then be repaid by the vendor who supplies the goods or services, typically through a payment schedule established at the time of the financing agreement.

Types of Businesses That Benefit Most

Purchase order financing is a type of lending that is designed for businesses that frequently have to deal with purchase orders from their customers. These businesses might be manufacturers, distributors, or retailers. The purchase orders serve as a guarantee of payment for the goods or services that will be delivered to the customer. Purchase order financing can help these businesses to get the money they need to finance the purchase of the goods they need to fill those purchase orders.

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