What is PO Funding? How is it Different than Invoice Factoring?

Purchase order financing (PO funding) helps businesses fulfill product orders.  If sales outpace your incoming cash flow, then purchase order financing might be a good fit to fulfill your customer order. Funding is sent directly to your vendor to purchase the product.  Once the product is shipped to your customer, an invoice is created and then factored to pay-off the PO funding.  PO funding works well for businesses that are only distributing products and not involved in the production or manufacturing of the finished product.  For example, a company that buys T-shirts and resells them to their clients.  PO funding is not available for service industries or construction projects.   PO funding requires a non-cancellable written purchase order from a credit-worthy customer.

If you have already delivered the goods or services and invoiced the customer, then invoice factoring may be the best option. With invoice factoring, you receive an advance of 80-85% of your invoice upfront. Once your customer pays the invoice, you receive the remain 15-20% (minus fees). The only requirement for invoice factoring is a credit worthy customer. 

Factoring allows a business to sell their invoices and receive cash immediately instead of waiting 30-60 days for customers to pay their invoice.  Invoice factoring is a great way to accelerate cash flow. Factoring can help your business grow without taking on bank debt or selling equity in your company.