How Does Purchase Order Financing Work?

In a typical PO financing arrangement, a financing company pays the supplier directly to fulfill an order. Once the goods are delivered to the buyer, the financing company collects payment from the customer. The business repays the financing company, often with a small fee based on the order amount. The process is fast and flexible, allowing businesses to access funds without taking on traditional loans or diluting equity.

Who Can Benefit from PO Financing?

PO financing is ideal for businesses that receive large orders but lack the working capital to fulfill them. Small and medium-sized businesses, especially in manufacturing, wholesale and retail, are the primary beneficiaries. It’s also useful for businesses that have growth potential but need immediate cash flow to scale up production.

Are There Any Risks with PO Financing?

While PO financing can be advantageous, businesses must ensure that the arrangement is suitable for their operational model. Key risks include high fees, particularly if the order value is large and potential delays in customer payment, which can affect your ability to repay the financing company.

How Much Does Purchase Order Financing Cost?

The fees for PO financing can vary, typically ranging from 1.8% to 6% per month based on the size of the order and the risk involved. Be sure to discuss the terms with the financing company and assess the cost relative to your profit margins.

Can PO Financing Be Used for International Orders?

Yes, many PO financing providers offer solutions for international orders. However, the process may involve additional documentation and risk considerations due to currency exchange and international shipping logistics.

Purchase Order Financing in Singapore

By Trinh Thanh

Head of Research

Glossary

Disclosure

By Trinh Thanh

Head of Research

Purchase order (PO) financing helps businesses fulfil large customer orders when they lack the working capital to pay suppliers upfront. When you receive a confirmed purchase order but don't have funds to buy inventory or materials, PO financing bridges the gap by advancing funds to pay your suppliers so you can deliver and get paid.

Unlike invoice financing which advances against completed sales, PO financing funds the production or procurement stage before delivery. This is offered by specialised trade finance providers, some banks and alternative lenders. This page explains how PO financing works and when it makes sense.

More Details

What Is Purchase Order Financing?

Purchase order financing advances funds based on a confirmed customer purchase order before you've delivered the goods. The lender pays your supplier directly, you fulfil the order, deliver to your customer and repay the advance plus fees when the customer pays.

How Much Can I Get?

Advance rate: 50 to 80% of PO value to cover supplier costs
Per order: $50,000 to $5,000,000
Paid to: Supplier directly not to your account

What Does It Cost?

Fees range from 2 to 6% per month depending on risk and timeline. Higher than invoice financing because the lender takes more risk as goods haven't been delivered yet.

Who Is Eligible?

Businesses with confirmed POs from creditworthy customers
Orders for finished goods not services
Supplier relationships established
Profit margin sufficient to cover financing costs

Disclosure

Glossary

How much do you want to borrow?

$50,000

$500,000

Over what period would you like to pay?

1 Month

60 Months

Total Cashback

Your monthly payment

Rate Disclaimer*

*Based on a $20,000 loan at 6.95% APR over 5 years, read more

How much do you want to borrow?

$50,000

$500,000

Over what period would you like to pay?

1 Month

60 Months

Total Cashback

Your monthly payment

Rate Disclaimer*

*Based on a $20,000 loan at 6.95% APR over 5 years, read more

Expert Advise

Financing Options

Our Expert says

PO Financing Is for Growth Constraints Not Cash Flow Problems

Purchase order financing makes sense when you have a profitable order you can't fulfil due to lack of working capital. If the order has healthy margins of 30% or more, using PO financing to capture revenue you'd otherwise miss is smart growth financing. If margins are thin the 2 to 6% monthly fees can wipe out profit. Do the math, if PO financing costs 4% per month and the order takes 3 months from supplier payment to customer payment that's 12% of order value in fees. Your gross margin must exceed this to make it worthwhile.

Trinh Thanh

Head of Research

Best Financing Options for Fulfilling Orders

Different solutions depending on your order fulfilment needs.

Purchase Order Financing

Best for: Large confirmed orders you can't fund

Advance 50 to 80% of PO value paid directly to your supplier. Repay when customer pays after delivery. Ideal for one off large orders that exceed your working capital.

Cost: 2 to 6% per month Speed: 1 to 2 weeks

Trade Financing

Best for: Ongoing import/export and inventory needs

Revolving credit facility for purchasing inventory and supplies. EFS Trade Loan offers government support up to $10 million. Better for ongoing trade than one off PO needs.

Cost: 5 to 8% p.a. Speed: 2 to 4 weeks

Working Capital Loan

Best for: General operational funding including inventory

Lump sum loan for any operational purpose. Fixed monthly repayments. More flexible than PO specific financing but requires ability to service monthly payments regardless of orders.

Cost: 7 to 10% p.a. EIR Speed: 3 to 14 days

Who Provides These Loans in Singapore?

Compare lender types, requirements and typical terms.

Banks

DBS, OCBC and UOB offer trade financing facilities for established businesses. Lower fees but stricter requirements. Minimum 2 years operating history required.

Advance Rate: 50 to 80%

Cost: 1.5 to 3% per month

Alternative Lenders

Funding Societies and specialised trade financiers offer PO financing with more flexible requirements. Accept businesses from 6 months old.

Advance Rate: 50 to 70%

Cost: 2 to 4% per month

Specialised Trade Financiers

Dedicated PO and trade finance companies with expertise in supply chain financing. May accept higher risk orders.

Advance Rate: 60 to 80%

Cost: 2 to 5% per month

No initial impact on credit score
Up to 1% Cashback & Vouchers
MAS registered lenders only

How much do you want to borrow?

$50,000

$500,000

Over what period would you like to pay?

1 Month

60 Months

Total Cashback

Your monthly payment

Rate Disclaimer*

*Based on a $20,000 loan at 6.95% APR over 5 years, read more

How Purchase Order Financing Works

Receive confirmed PO

Customer issues a confirmed non-cancellable purchase order for goods.

Apply for PO financing

Submit PO, supplier quote and business documents to lender.

Lender pays supplier

Once approved lender pays your supplier directly (50 to 80% of PO value).

Fulfil and deliver

You receive goods from supplier, complete any value add and deliver to customer.

Customer pays, you repay

Customer pays you or lender directly. Lender takes repayment plus fees and you keep the profit.

Pros & Cons of Purchase Order Financing

PROS

Fulfil large orders without existing capital
Capture growth opportunities you'd otherwise miss
Supplier paid directly reducing risk for lender
No fixed monthly payments tied to order cycle

CONS

Higher cost than other financing (2 to 6% per month)
Only for confirmed POs with creditworthy customers
Funds go to supplier not your account
Profit margins must exceed financing costs
Longer approval process (1 to 2 weeks)

How to find the Right Way to Finance Your Purchase Orders (FAQs)

How is PO financing different from invoice financing?

Invoice financing advances against completed sales after delivery while PO financing advances against confirmed orders before delivery to fund production or procurement.

Can I use PO financing for services?

PO financing is designed for tangible goods with clear supplier costs so no services are harder to finance this way.

What if the customer cancels the order?

This is why lenders require confirmed non-cancellable POs, if cancellation occurs you may still owe the advance depending on terms.

What margins do I need for PO financing to make sense?

Generally 30% or higher gross margin. If financing costs 3 to 4% per month and the order cycle is 2 to 3 months you'll pay 6 to 12% in fees. Margins must exceed this.

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Explore Other Financing Options

Purchase order financing funds specific large orders but for ongoing inventory needs, trade financing or working capital loans may be more cost effective. For receivables after delivery, invoice financing unlocks cash faster than waiting for customer payment.

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Purchase Order Financing in Singapore

Fact-checked

Glossary

Disclosure

Useful Resources

Fact-checked

What Is Purchase Order Financing?

How Much Can I Get?

What Does It Cost?

Who Is Eligible?

Disclosure

Glossary

Useful Resources

Your monthly payment

Your monthly payment

Expert Advise

Financing Options

PO Financing Is for Growth Constraints Not Cash Flow Problems

Best Financing Options for Fulfilling Orders

Who Provides These Loans in Singapore?

Your monthly payment

How Purchase Order Financing Works

Pros & Cons of Purchase Order Financing

PROS

CONS

How to find the Right Way to Finance Your Purchase Orders (FAQs)

How is PO financing different from invoice financing?

Can I use PO financing for services?

What if the customer cancels the order?

What margins do I need for PO financing to make sense?

Our customers trust us when it comes to making important borrowing decisions

Explore Other Financing Options