Quick answer
Purchase order finance pays your supplier so you can fulfil a confirmed customer order you lack the cash to deliver. The lender typically pays the supplier directly and is repaid when your customer pays. Ownright Custom Finance arranges purchase order finance Australia-wide for resellers, wholesalers, importers and growing product businesses.
Key points
- Funds go to the supplier to fill a confirmed order from a creditworthy customer
- Useful when a big order outgrows your working capital
- Repaid from the customer's payment, often alongside invoice finance
- Works best for resellers with clear margins and reliable suppliers
- Suits
- Resellers, wholesalers, importers and product businesses with confirmed orders
- Security
- The order, the goods and the customer's payment
- Structures
- Supplier payment, often paired with invoice finance on delivery
- Australia-wide
- Yes
What is purchase order finance?
Purchase order finance is funding that lets you accept a large customer order by paying the supplier on your behalf. You have the order, the customer is solid and the margin is there, but your bank balance is not big enough to buy the goods first. A funder steps in, pays the supplier and is repaid when your customer pays for the delivery.
It is a niche product, and many business owners never hear about it. It exists because growth can be expensive: the bigger the order, the more cash must go out before any comes in.
When does purchase order finance make sense?
- A retailer or distributor offers a larger order than you have ever handled
- An importer needs to pay an overseas manufacturer upfront
- A product brand lands a major stockist and must scale production fast
- A wholesaler wins a tender with a fixed delivery date
- A seasonal order needs stock bought well before the customer pays
If the order is weak, the margin is thin or the supplier is unreliable, funders are cautious. The best candidates have a clear, profitable deal on paper.
How does it work, step by step?
- Your customer issues a purchase order.
- You obtain a quote from your supplier.
- The funder reviews the order, customer, supplier and margin.
- The funder pays the supplier, in whole or in part.
- Goods are delivered to the customer and you invoice them.
- The customer pays, the funder takes its repayment and charges, and you keep the remainder.
Often the invoice stage is then handled by debtor finance or selective invoice finance, so the whole cycle is funded from order to payment.
What do funders look at?
The customer. A reputable business or government body with a strong payment record carries more weight than an unknown buyer.
The margin. There must be enough profit in the deal to cover the finance cost and still leave you with a return.
The supplier. Reliability, quality control, delivery history and whether they will accept direct payment.
You. Your experience fulfilling similar orders, your trading history and how you manage delivery and quality.
The paperwork. A signed purchase order, supplier quote and clear delivery terms.
Purchase order finance compared with other funding
| Product | Funds | Best for |
|---|---|---|
| Purchase order finance | Supplier payment before delivery | A specific confirmed order |
| Selective invoice finance | Cash against issued invoices | Occasional gaps after invoicing |
| Debtor finance | Ongoing ledger funding | Steady, recurring cash needs |
| Stock and inventory finance | Holding stock | Ongoing inventory needs, see stock and inventory finance |
| Working capital loan | General cash | Mixed needs, see working capital loans |
How Ownright arranges purchase order finance
Trevor Scott and the team begin with the deal itself. Who is the customer, who is the supplier, what is the margin and when is the money due? Those four questions usually tell us whether purchase order finance is realistic or whether a different structure will serve better. Some deals suit a short-term loan; our guide on short-term versus long-term business loans helps frame that choice.
We also look for funders who understand your trade. An importer has different needs from a local wholesaler, and import finance and trade finance sometimes sit alongside. Ownright works Australia-wide and will tell you honestly if the numbers do not stack up.
An illustration
Illustrative scenario only. A homewares brand receives a large order from a national stockist. Production is due in eight weeks and the supplier wants payment upfront. The owner does not have enough working capital. A broker could arrange for a funder to pay the supplier directly, then provide invoice finance after delivery, so the owner can fill the order without draining the business.
Mistakes to avoid
- Accepting an order without checking the margin after finance costs
- Relying on a new, untested supplier for a large order
- Ignoring delivery risks or customs timing for imported goods
- Failing to line up invoice finance for the stage after delivery
- Overcommitting to orders you may not be able to quality-control
Documents to have ready
- Customer purchase order
- Supplier quote or proforma invoice
- Delivery timeline and terms
- Recent financial statements, BAS and bank statements
- Photo ID and details of your trading history
If you need a general checklist, see our business loan documents checklist.
How much margin does a deal need?
Purchase order finance carries a cost, so the order must be profitable enough to absorb it. As a rule of thumb, funders want to see a healthy gross margin after the supplier cost, freight and any duties, and still enough left for you once the funding charges are paid. Deals with thin margins are hard to fund because there is little room for delays or price changes. Work out the full landed cost and the finance charge before you accept an order, not afterwards.
What risks should I plan for?
Supply chain problems are the main one: late shipments, quality failures, wrong specifications or a supplier that cannot deliver. If the goods are late or rejected, your customer may refuse to pay, and the funder still expects repayment. Currency movements affect imported goods, and customs delays can add costs. Good preparation includes inspecting samples, agreeing delivery penalties with the supplier, and keeping a buffer. A broker cannot remove these risks, but we can help structure the deal so you are less exposed.
Can a new product business use purchase order finance?
It can be possible, although funders look harder at newer operators. They want to know you have delivered similar orders before or that your supplier has a strong record. A customer with a solid reputation helps a great deal, as does clear documentation. If your trading history is short, we talk through what evidence you can offer and which funders are open to younger businesses.
Got the order but not the cash?
Sounds like you’re looking for purchase order finance. We’re the lending experts in funding the supplier side of big orders, so see if you qualify and we will work out the best structure.
How it works, step by step
- 1
Step 1
Send us the customer order, supplier quote and delivery timeline.
- 2
Step 2
We check the margins and customer strength and pick a suitable funder.
- 3
Step 3
The funder verifies the order and pays the supplier directly.
- 4
Step 4
Goods are delivered, the customer pays and the funder is repaid.
Frequently asked questions
How does purchase order finance differ from invoice finance?
Invoice finance advances cash after you have invoiced. Purchase order finance helps before that, paying the supplier so you can make or buy the goods. The two are often used together: purchase order finance for production, then invoice finance once the goods are delivered and invoiced.
What kind of business uses purchase order finance?
Typically businesses that resell or assemble goods, such as distributors, importers, wholesalers and product brands. They have a confirmed order from a reliable customer but not enough working capital to pay the supplier. Service businesses with no physical goods are less suited.
What do funders look for?
The strength of your customer, the margin on the deal, the reliability of the supplier and your own track record fulfilling orders. They also want clear paperwork: the purchase order, supplier quote and delivery terms. Thin margins or unproven suppliers make approval harder.
Does the funder pay my supplier directly?
Usually, yes. Paying the supplier directly reduces risk because the funds go to the goods, not into general cash flow. The supplier may need to be comfortable with that arrangement. We explain the process so your supplier is not surprised.
Is purchase order finance expensive?
It can cost more than a standard loan because it carries more risk and is often short-term. Pricing depends on the deal, the customer and your history. It makes sense when the margin from the order outweighs the finance cost. We help you work through that before you commit.
Can I use it for imports?
Sometimes. Importers often face long lead times and upfront payments to overseas suppliers, which is where this finance can help. Lenders will look at supplier reliability, shipping, customs and timing. Our import finance page covers related options and we can point you to a suitable approach.