PO financing vs factoring
The two are often confused because both turn a customer’s order into cash. The difference is timing: one pays your supplier so the order can be filled, the other advances an invoice you have already earned.
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Updated October 13, 2026 · Merchant Fund Express
Use purchase order financing when you have a confirmed order from a creditworthy customer but cannot pay your supplier to fill it. Use invoice factoring when the goods are delivered, the invoice is issued and the problem is waiting 30, 45 or 60 days to be paid. Factoring cannot help you fill an order you cannot pay for, and purchase order financing does nothing for invoices you already sent.
Many deals use both: the purchase order funder pays the supplier, and when the goods are delivered the invoice is factored to repay it.
| Purchase order financing | Invoice factoring | |
|---|---|---|
| When cash arrives | Before delivery, paid to your supplier | After delivery, paid to you |
| What is underwritten | The order, the supplier and your customer | The invoice and your customer’s payment history |
| Typical users | Distributors, wholesalers and resellers of finished goods | Any business that invoices other businesses on terms |
| Who your customer pays | Usually the funder, who takes its share and sends you the rest | Usually the factor, who releases the reserve less its fee |
| Usually not a fit | Services, or goods you manufacture with labor-heavy production | Sales to consumers, or invoices with disputes or partial delivery |
A wholesale distributor, 3 years in business, receives a $90,000 order from a regional grocery chain on Monday, October 19, 2026. Its supplier charges $54,000 and wants payment before shipping on October 26. Goods are delivered and invoiced November 9, and the chain pays on net 45 terms, on December 24, 2026.
| Purchase order financing | Invoice factoring only | |
|---|---|---|
| Who pays the supplier on Oct 26 | PO funder pays $54,000 | The distributor must pay $54,000 from its own cash |
| Assumed fee | 3% of $54,000 per 30 days | 2% of the $90,000 invoice for 30 days, then 1% per 15 days |
| Days outstanding | 59 (Oct 26 to Dec 24), billed as two 30-day periods | 45 (Nov 9 to Dec 24) |
| Fee | $3,240 | $2,700 (3% of $90,000) |
| Cash to the distributor before Dec 24 | $0 | $76,500 advance (85%) on Nov 9 |
| Paid on Dec 24 | $90,000 to the funder; $57,240 kept, $32,760 to you | $13,500 reserve less $2,700 fee, so $10,800 to you |
| Kept after paying the supplier | $32,760 | $33,300 ($76,500 + $10,800 − $54,000) |
Factoring looks $540 cheaper, but only for a distributor that already had $54,000 on October 26. Without it, the order is not filled and the comparison is $32,760 against nothing. With purchase order financing, the distributor keeps about 36% of the order value without putting cash in. If it can pay the supplier from a line of credit or reserves, factoring alone costs less.
All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.
A confirmed order, a reliable supplier, finished goods shipped as-is, a creditworthy customer and a margin wide enough to absorb a monthly fee, ideally 20% or more.
Delivered work, clean invoices to business customers who pay reliably, and a gap between paying your costs and getting paid.
A thin margin, a customer with a history of disputes, or an order that would empty your account if the customer pays late. Negotiate a deposit from the customer or shorter terms instead.
A business with 3+ years, a 650+ FICO and $25,000 a month in revenue may clear our Tier 1 for a line of credit, which is often cheaper for repeat orders.
Invoice factoring is one of the products we discuss, along with working capital, revenue-based financing and a business line of credit. Purchase order financing is not a product we publish. If your order needs the supplier paid first, a working capital or revenue-based option reviewed on your bank deposits can cover the supplier payment, and the invoice can be factored after delivery. Read wholesale purchase order funding, funding for purchase orders and invoice factoring.
Map the dates of your own order: when the supplier wants paying, when you deliver and when the customer pays. Then check the free qualification check or start the application, which takes about five minutes and begins with a soft credit pull.
Yes. It is common: the purchase order funder pays the supplier, and the invoice is factored after delivery to repay it.
Usually not. It is built around finished goods that a supplier ships. Service businesses usually look at factoring or working capital.
Usually yes for both, because the customer is told to pay the funder or factor. Some factors offer arrangements where the customer is not notified; ask before signing.
It is not a product we publish. Invoice factoring, working capital, revenue-based financing and lines of credit are, and a supplier payment can be covered by working capital if your deposits support it.
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