Small to medium-sized enterprises (SMEs) with purchase orders (POs) can struggle to access financing to support the contracts they receive. SMEs often struggle to fulfil purchase orders due to severe cash flow shortages, lack of working capital to buy raw materials upfront, limited bargaining power with suppliers, over-reliance on a single or unvetted vendor, and manual tracking systems that cause operational bottlenecks.
To help SMEs fulfil their POs, FNB and Sourcefin have partnered up to create a referral arrangement, designed to help eligible businesses explore purchase order financing to deliver confirmed purchase orders.
“Many businesses face a familiar challenge: they receive a confirmed purchase order or contract but need cash up front. This cash flow gap can prevent otherwise capable businesses from taking on opportunities and growing. To help address this, FNB can now refer eligible business clients to Sourcefin for consideration for purchase order (PO) financing,” says FNB.
Sourcefin’s Purchase Order Expertise
Launched in 2021, Sourcefin is an alternative finance provider and fintech specialising in purchase order (PO) funding and fit-for-purpose funding solutions for SMEs. The company reports it has deployed R3 billion to more than 1000 SMEs across South Africa in just five years of operation.
With long-term business growth top of mind, Sourcefin also reports that it connects funded businesses to a network of more than 2 000 pre-vetted suppliers worldwide and partners with SMEs along their business journey to support delivery outcomes.
In terms of the referral arrangement, FNB can refer SMEs seeking PO- or tender-based work directly to Sourcefin so that qualifying entrepreneurs who have secured work but need the upfront capital to deliver can apply to Sourcefin for funding.
This allows a business to be considered for funding based on a confirmed purchase order or contract, so it can complete delivery before receiving payment from the client.
“Sourcefin exists to enable SMEs,” adds Joshua Kadish, CEO and co-founder of Sourcefin.
How the Referral Arrangement Works
SMEs with a valid purchase order can speak to their FNB relationship manager or business banker, who can facilitate a referral to Sourcefin. Upon receiving the referral, Sourcefin will validate the purchase order, vet the parties involved and independently assess the application. Sourcefin also performs its own fraud checks as part of its assessment.
FNB does not assess, approve, or fund applications, and a referral does not guarantee that funding will be offered by Sourcefin.
Gavin Tarr, Head of Working Capital Solutions, FNB Commercial Structured Finance Solutions, says, “Many businesses are doing the right things – securing customers and confirmed orders – but struggle with cash flow at the point they need to deliver. By enabling access to purchase order financing through this referral arrangement, we are helping SMEs unlock cash flow when it is most needed.”
Who can Access the Referral Arrangement?
This referral arrangement is available to established FNB business clients, particularly SMEs, delivering against confirmed purchase orders across both private and public sector supply chains.
“Importantly, this does not replace FNB’s existing business loans or trade finance solutions. Instead, it fills a specific gap for SMEs that have secured confirmed purchase orders but need funding upfront to deliver them,” says Tarr.
Benefits of Purchase Order Funding for SMEs
Purchase orders are one way in which SMEs can make capital while still running their daily business. Getting financing for purchase orders has many benefits for small businesses, including:
Improved Cash Flow
The primary advantage of PO funding is its ability to significantly enhance cash flow. Because it usually comes with more flexible requirements than conventional bank loans, it is a compelling choice for many businesses.
Additionally, any excess cash that remains after expenses have been paid can be invested into the business to grow it further.
Accelerated Business Growth
PO funding can fuel business growth. With better access to funding, SMEs can take on larger orders and grow the customer base without waiting for payments from previous orders. Timely payments to suppliers can strengthen relationships within the supply chain, potentially leading to better terms or discounts, which can improve profit margins.
With proper financing in place, SMEs can focus on scaling rather than worrying about immediate cash flow issues.
Risk Mitigation
PO funding provides SMEs with a safety net that enables them to fulfil orders without overextending themselves financially, reducing the likelihood of defaulting or operational disruption.
PO funding can be tailored to specific orders, allowing SMEs to only borrow what they need, thus managing financial risk more effectively.
Lastly, PO funding allows founders to protect their cash reserves. This is especially important when it comes to navigating changing market conditions. Also, PO funding is better for SMEs because there is no risk when it comes to their creditworthiness. Typically, approval is based on the customer issuing the PO rather than the small business’s credit history or trading track record.
Take on Larger Orders
With PO financing, SMEs don’t have to turn away larger orders out of fear of upfront costs. The financing allows small businesses to accept large orders without sacrificing business growth.
How a Connected Funding Ecosystem Helps SMEs
The partnership between FNB and Sourcefin is one example of how a connected funding ecosystem significantly enhances SME growth. By linking eligible SMEs to Sourcefin, it cuts down paperwork, speeds up approvals, and ensures that SMEs are in a position to repay any funding they receive.
“These businesses often have real work in hand but get stuck at the point of execution. Working with FNB brings trusted banking reach together with open-minded funding, so more entrepreneurs can convert confirmed demand into delivery and sustainable business growth,” concludes Kadish.
