Winning a government or corporate tender is only half the battle. Most tenders require you to buy stock, materials, or labour upfront, and pay your own suppliers, weeks or months before the client settles the invoice. That gap is where purchase order (PO) funding comes in.
What Is Purchase Order Funding?
Purchase order funding is short-term finance secured against a confirmed order rather than your business’s own trading history or assets. A funder pays your supplier directly (or advances you the cash) so you can fulfil the order, then recovers its advance plus a fee once the client pays the invoice.
It differs from a typical business loan in one important way: the funder is underwriting the order, not your balance sheet. That makes it accessible to smaller or newer suppliers who would not qualify for a conventional facility, provided the buyer is creditworthy (most funders favour government departments, state-owned entities, and large corporates for this reason).
How Purchase Order Funding Works
- You secure the order. You need a signed purchase order or awarded tender, not just a quote.
- The funder assesses the buyer, not just you. Approval hinges heavily on the creditworthiness of whoever issued the PO.
- Funds are released to fulfil the order. Some funders pay your supplier directly; others advance a percentage of the order value to your account.
- You deliver and invoice the client. The client pays the invoice as normal, but often into an account nominated by the funder, or the funder collects directly.
- The funder deducts its advance and fee before releasing the balance to you.
Purchase Order Funding vs Invoice Discounting
The two are often confused. PO funding covers the period between winning the order and delivering it, when you still need to pay for stock or subcontractors. Invoice discounting (a form of working capital finance) covers the period after you have delivered and invoiced, while you wait for the client to pay. Some SMEs use both in sequence on the same contract: PO funding to deliver, then invoice discounting to bridge payment terms once the invoice is out.
Who Qualifies for Purchase Order Funding
Funders generally look for:
- A confirmed, signed purchase order or letter of award, not a draft or verbal commitment
- A creditworthy buyer, typically government, a state-owned entity, or an established corporate
- A realistic gross margin on the order, since the funder’s fee comes out of that margin
- A track record of being able to deliver the order (capacity, not just intent)
Because approval is driven by the buyer’s credit standing rather than yours, this is one of the more accessible funding routes for SMEs that have won their first few tenders but have not yet built up trading history.
Where to Find Purchase Order Funding in South Africa
South Africa’s working capital and invoice finance providers increasingly offer purchase order or supply chain finance as part of a broader product range, so it is worth comparing terms rather than approaching a single funder in isolation. Government’s own eTender Publication Portal is the primary source for the tenders that make this type of funding relevant in the first place, so confirming a tender’s status there before you approach a funder will save you time. Once you have identified an opportunity, our roundup of where to find tenders in South Africa covers the other platforms worth checking.
Frequently Asked Questions
Can I get purchase order funding without collateral?
Usually yes. The order itself, backed by a creditworthy buyer, serves as the security, which is why this route suits SMEs without significant assets.
How much does purchase order funding cost?
Costs vary by funder and risk, and are usually charged as a percentage of the order value or an interest rate over the funding period. Compare the total cost, not just the headline rate, before committing.
What if the client pays late?
This is the main risk in PO funding: your margin can be eroded if the buyer delays payment, since the funder’s fee accrues over time. Confirm the payment terms and the funder’s approach to late payment before signing.
If a purchase order has already stretched your cash flow, our guide to finding tenders and our roundup of working capital providers are good next stops for sourcing your next opportunity and the finance to fulfil it.
