Cash flow finance

Purchase order finance for UK suppliers and distributors

How purchase order finance pays your supplier so you can fulfil a large confirmed order, which businesses it suits, what funders check and what it costs.

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Amount: From around £10,000 to £500,000+Larger facilities available in suitable cases
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Suitable businesses: Sole traders to limited companiesPartnerships and LLPs too
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In short

Purchase order finance pays your supplier so you can fulfil a confirmed order from a creditworthy business or public sector customer that you could not otherwise afford to buy in. It suits resellers, wholesalers and distributors of finished goods with a healthy margin on the deal. The funder relies mainly on your customer's credit and your supplier's ability to deliver, and is usually repaid through invoice finance once you bill the customer.

Purchase order finance is for the business that has won an order bigger than its bank balance: a distributor asked to supply a national retailer, a wholesaler with a public sector framework call-off, a reseller whose customer wants a container of product delivered in eight weeks. The order is real and profitable, but the supplier wants paying before goods ship, and the customer will not pay until 30 to 90 days after delivery. As a broker, Smart Funding Solutions arranges finance from around £10,000 to £500,000+, with larger facilities available in suitable cases, and approaches funders on our panel that specialise in order-by-order funding. It is one of several options on our cash flow finance hub.

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How purchase order finance works

The funder does not lend against your balance sheet. It funds a single transaction, and the security is the order itself, the goods and, above all, your customer's promise to pay.

You receive a firm purchase orderfrom a business or public body, with agreed price, quantity, delivery terms and payment terms.
The funder checks the dealyour customer's credit standing, your supplier's track record, the paperwork and the margin between your buying and selling price.
The funder pays your supplier, either by direct transfer or by issuing or backing a letter of credit if the supplier is overseas.
Goods are delivered, ideally straight from the supplier to your customer, and you raise your sales invoice.
The invoice clears the funding. Either your customer pays into a controlled account, or an invoice finance provider advances against the invoice and that advance repays the purchase order funder. The balance, less charges, comes to you.

Because the funding is transaction-based, charges usually accrue for as long as the money is out, often priced per month or part-month. A late shipment or slow-paying customer therefore costs you directly.

Illustration: one order start to finish

Illustration only, with round hypothetical figures. A homeware distributor receives a £200,000 order from a retail chain on 60-day terms. The goods cost £140,000 from a UK manufacturer that wants payment before dispatch. The distributor has £20,000 available. A purchase order funder pays the supplier's invoice directly; the goods are delivered to the retailer's distribution centre; the distributor invoices £200,000, and an invoice discounting facility advances against that invoice, repaying the funder. When the retailer pays, the discounting provider releases the balance less its charges. The distributor's profit is the £60,000 gross margin minus both funders' charges, freight and its own costs, which is why margin is the first thing to test.

Costs and risks

Purchase order finance is one of the more expensive forms of short-term funding, because the funder carries supplier risk, delivery risk and customer risk on a single transaction. Think about:

Time is cost. Charges build while goods are made and shipped. A factory delay of a few weeks can erode the margin.
Two facilities, two sets of fees. Where invoice finance repays the funder, you pay for both.
Customer disputes. If the customer rejects part of the delivery, the invoice may not be fundable, and you remain responsible for the shortfall.
Personal guarantees. Directors are often asked to guarantee performance warranties. Read our guide to personal guarantees before signing.
Control. The funder deals directly with your supplier and sometimes your customer, which some businesses prefer to avoid.

If orders of this size are becoming normal rather than exceptional, a standing trade finance line or growth finance is likely to be cheaper and less intrusive over time.

Underwriting

What lenders look at in each order

Your customer

its credit rating, filed accounts and payment record. A funder will often check it on the Companies House register and with credit agencies before looking closely at you.

The purchase order

whether it is firm and unconditional, or subject to approval, sale-or-return, retention or cancellation rights that could leave you holding stock.

Gross margin on the deal

funders need enough margin to cover their charges, freight, duty and any shortfall. A thin margin on a large order is one of the most common reasons for decline.

Your supplier

how long it has traded, whether it has delivered to this specification before, and whether it will accept payment from a third party or a letter of credit.

Delivery and title

who holds the goods between supplier and customer, when title passes, and whether independent inspection or a bill of lading will evidence shipment.

Your track record

evidence you have sourced and sold similar goods before, even at a smaller scale, and that the order is within your operational capacity.

The repayment route

an agreed path from customer invoice to cash, usually through an invoice finance facility already in place or arranged alongside.

Checklist

Documents you will need

The customer's signed purchase order, framework agreement or contract, including payment terms
Your supplier's pro forma invoice or quotation, with specification, price and delivery date
A deal sheet showing buying price, selling price, freight, duty and other landed costs
Evidence of previous similar orders, such as past invoices to the same or comparable customers
Latest filed accounts, management accounts and recent business bank statements
Details of any existing invoice finance facility, or your aged debtor list if one is needed
Shipping documents or inspection arrangements for imported goods
ID for directors and details of other shareholders

Side by side

Compare your options

How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.

Option	How you repay	Security	Often used for
Unsecured business loan	Fixed instalments, usually monthly	No charge over assets; a personal guarantee is usually required	Growth, stock, tax bills and cash flow
Secured business loan	Fixed instalments, often over a longer term	A charge over property or other assets	Larger sums, property and refinancing
Revolving credit facility	Interest on what you draw; repay and redraw	Varies by lender and case	Recurring or uneven cash flow gaps
Merchant cash advance	A share of future card takings	No charge over assets	Card-taking businesses with uneven months
Asset finance	Regular payments over the life of the asset	The asset being financed	Equipment, vehicles and machinery
Invoice finance	Settled as customers pay their invoices	Your unpaid invoices	Businesses waiting on customer payment

General information only. Every lender has its own criteria, and all finance is subject to status.

Where it fits and where it does not

Purchase order finance works best when the goods pass through your hands largely unchanged. Funders are comfortable financing finished products they can identify, value and, in the worst case, redirect to another buyer. They are far less comfortable once your own labour turns materials into something else, because a half-built product has little resale value.

Situation	Typical fit	Why
Distributor buying branded goods for a large retailer	Strong	Finished stock, creditworthy buyer, clear margin
Wholesaler fulfilling a public sector framework order	Strong	Public bodies are low credit risk, though payment processes can be slow
Importer with a customer order and a factory in Asia	Possible	Supplier checks, inspection and shipping documents add steps
Manufacturer that needs raw materials to make the order	Limited	Work in progress is hard to value; stock or trade finance may suit better
Service business, such as a consultancy or installer	Poor	No goods for the funder to control; look at contract or invoice finance
Sales to consumers	Poor	No business customer whose credit underpins the deal

If you make or assemble goods, our pages on manufacturing finance and stock finance cover structures built for that. Wholesalers with repeat trade rather than a one-off order should also read our guide to wholesale business finance.

Purchase order finance compared with other options

Trade finance

Trade finance also pays suppliers, but it is usually a standing facility sized on your own trading record and credit, which you draw on for many purchases. Purchase order finance is narrower and leans on your customer's strength, so it can support a younger or thinly capitalised business with one large order that a trade finance line would not yet cover.

Invoice finance

Invoice finance only starts once goods are delivered and invoiced. It solves the wait for payment, not the cost of buying the goods in the first place. The two are often combined: purchase order finance gets the goods to the customer, and selective invoice finance or a whole-ledger facility takes over once the invoice exists.

Working capital loan or revolving facility

A working capital loan gives you cash to spend as you choose and does not require the funder to deal with your supplier or customer. It is simpler, but the lender sizes it on your own bank statements and accounts, so the amount may fall short of a large order. It also leaves you repaying in fixed instalments whether or not the customer has paid.

Supplier credit and customer deposits

Before borrowing, ask whether your supplier will extend terms or accept a smaller deposit, and whether your customer will pay a deposit on order or pay on delivery rather than on 60 days. On a single large order, even a partial deposit can reduce what you need to fund.

How we arrange purchase order finance

Test the dealwe look at the order, the margin and the timeline to see whether transaction funding makes sense, or whether a simpler option would do.
Map the repaymentwe check whether you have invoice finance in place or need it arranged alongside, so the two facilities join up.
Approach suitable fundersonly those on our panel that fund your type of goods, supplier location and customer.
Compare termscharges, how long the funding can stay out, recourse and guarantees, set out side by side.
Funder decisionthe funder carries out its own checks on your customer and supplier and decides whether to proceed.

It is free to enquire; any broker fee is disclosed separately before you proceed. You can start an enquiry online.

FAQs

Questions clients ask

Can a start-up use purchase order finance?

Sometimes. Because the funder relies mainly on your customer and supplier, a short trading history matters less than with a loan. You will still need to show you understand the goods and can deliver the order, and funders are more cautious where the business has no filed accounts. Our start-up business loans page covers other routes.

Does my customer have to know?

Usually yes, at least in part. The funder will want to verify the order with your customer and, where invoice finance repays the funder, payment normally goes to a controlled account. Some funders keep contact to a minimum, but fully confidential purchase order finance is uncommon.

Is purchase order finance available for export orders?

It can be, where the overseas buyer is creditworthy and credit insurance is available on it. The funder will look closely at the country, the currency and how title and payment are documented. Our guide to export invoice finance explains how the invoice stage is funded for overseas customers.

What happens if my supplier fails to deliver?

That is the funder's main worry, and the reason it checks suppliers closely and may insist on inspection or a letter of credit. If the supplier does not deliver, you remain liable to the funder for money already paid out, subject to the agreement, so it is worth checking what recourse you have against the supplier before you commit.

How long does purchase order finance take to set up?

The first purchase order finance deal takes longest, because the funder needs to check your business, your customer's credit standing, your supplier and the paperwork. Once you are set up, later orders with the same customer and supplier can move much faster. Having the signed purchase order, supplier quote and margin figures ready helps. Where suppliers are overseas, our page on trade finance covers related options.

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