What is Purchase Order Financing?

By QuickBooks Canada Team

1 min read

Purchase order financing can provide critical support to your small business. This is a short-term loan that your business can use to pay its suppliers so your business can fill purchase orders. For instance, if you get a large order that you need to fill, you may need extra cash to pay your suppliers so you can build the product and ship it. This is particularly useful for a startup or relatively new business without enough resources to fulfill a large purchase order, so it might otherwise have to forgo the job. This can also create a perception that your business is not up to the task of filling a large order – or, worse, that you’re in financial trouble. A purchase order financing company would advance the money to your business or directly to your supplier, allowing you to complete the order and generate a profit. This solves your immediate cash flow problem. However, purchase order financing is a loan that’s backed by your purchase order. The company advancing you the funds has requirements, such as ensuring your business and your customer are creditworthy. There is also be an interest cost attached to the deal. Purchase order financing allows your business to scale and grow faster than it might otherwise. It may lead to more large orders coming your way as your business’s reputation grows.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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