Purchase order funding is a type of financing that lets suppliers turn purchase orders into cash. Instead of waiting for a P.O. to make it through the proper channels and eventually become a check for your business, you can exchange your P.O.s for working capital. You can spend this capital on anything your business may need: payroll, supplies, and inventory are just a few examples.

A company has a number of obvious assets, such as cash, office equipment, or property. Another asset is purchase orders. Once you, as a supplier, accept a P.O., it becomes a legally binding contract. As such, that P.O. has a monetary value: purchase order funding lets you cash in your purchase orders and receive money now instead of waiting for a check to be cut.

Why Get Purchase Order Funding?

If purchase orders are worth money, why not just wait for payment--why do some suppliers need funding now? Many suppliers get purchase order funding to help them fill orders. A large P.O. may use up all their liquid assets, so they need to get financing to get or make more supplies.

When a supplier accepts a purchase order, they know that they will get paid for what the P.O. is worth. But in many cases, the supplier needs funding just to fill and ship those large orders. This type of funding makes them able to convert future monies--the P.O.--into cash on hand so they can process the order.