Purchase order financing can let a small business deliver a contract it could never fund alone. It also costs more than most people expect, and it only works for certain kinds of orders. This page weighs the two sides so you can decide whether it is the right tool for a specific deal. For how the finance works, see what purchase order funding is and where to get it.
The advantages
- The deal matters more than your balance sheet. Funders focus on the order, the margin and the buyer’s ability to pay, so younger businesses without much collateral can qualify.
- You can accept bigger orders. Contracts that would otherwise be turned down become possible, which builds your track record for the next one.
- No monthly instalments. The funder is repaid from the client’s payment, not from your monthly cash flow.
- Speed. With complete documents, deals are often funded far faster than a bank loan.
The disadvantages
- It is expensive. Fees taken from a single order can consume a large share of your margin, especially when payment is slow.
- Your client’s reputation counts. If your buyer has a history of late or disputed payments, funders may decline, however good your business is.
- It suits goods, not services. Most funders want something tangible to pay for and deliver.
- You lose some control. Funders often pay your suppliers directly and require the client’s payment to go through an account they control.
- Low-margin deals do not work. Many funders need a gross margin of around 20% or more.
When it is the right choice
Purchase order financing makes sense when the order has a healthy margin, the buyer is reliable, delivery is within your control, and the contract builds your business beyond this one deal. It is the wrong choice for a thin-margin order, a buyer known for slow payment, or a recurring cash flow gap, which is better solved with a working capital facility.
Questions to ask before you sign
- What is the total fee if the client pays in 30, 60 and 90 days?
- Will you pay my suppliers directly, and how quickly?
- What happens if the client disputes or rejects part of the delivery?
- Are there any upfront fees before the deal is approved?
Most funders will also ask for a valid tax compliance status, which you can check on the SARS tax compliance status page.
Frequently asked questions
Who is purchase order financing best suited for?
Distributors, resellers, manufacturers and wholesalers with confirmed orders from reliable buyers.
Does it require a good credit score?
Your own score matters less than your client’s creditworthiness and your ability to deliver.
How much does it cost?
Fees vary by funder and by how long repayment takes. Always ask for the total cost in rands for different payment dates.
Is it better than a bank loan?
For a single large order, often yes. For ongoing cash flow needs, a bank facility is usually cheaper.
Where can I see how a deal works in practice?
Our step-by-step guide to how a purchase order funding deal works follows one example from order to payout.
Originally published in April 2022. Updated September 2026.
