Invoice Factoring vs. Purchase Order Financing
They solve different problems. Factoring turns a completed invoice into cash. PO financing pays your suppliers so you can produce the order in the first place.
The quick answer
Use PO financing when you've won a big order but can't afford to buy the materials. Use factoring after you've shipped and invoiced. Many deals use both back-to-back.
Side by side
| Invoice Factoring | Purchase Order Financing | |
|---|---|---|
| When it funds | After you invoice | Before you produce |
| Uses | Any operating expense | Supplier payments only |
| Cost | 1.5%–3.5% per invoice | 3%–6% per transaction |
| Approval basis | Customer credit | Customer credit + supplier + margin |
| Margin required | Any margin | Typically 20%+ gross margin |
| Best for | Ongoing AR turnover | One-off large orders |
When Invoice Factoring is the right call
- You've already delivered and invoiced
- Your customers pay slowly
- You need working capital across all orders
When Purchase Order Financing is the right call
- You've won an order too big to self-fund materials
- Gross margin is at least 20%
- The end buyer is investment-grade or strong credit
- You have a supplier ready to fulfill
Bottom line
Most PO-financed deals roll straight into factoring the moment you ship. Funding partners set them up together so nothing falls through the cracks.
Frequently Asked Questions
Sometimes—if the end buyer is a top-tier customer (national retailer, government, large OEM) and your supplier has a track record. The deal has to work on the buyer's credit, not yours, and margin has to carry the cost of both funders.
25%–30% gross is the practical floor. Below that, combined PO fees (3%–6% per transaction) plus factoring fees on the resulting invoice compress margin to breakeven or worse.
The funder issues a letter of credit or wires payment directly to your supplier against the purchase order. You never touch the funds. When the goods ship and you invoice the end buyer, the factor advances against that invoice and pays off the PO funder.
Yes, and it's common—especially for imports from Asia and Europe. Letters of credit are the standard instrument. Expect additional inspection and documentation requirements, and a slightly higher fee.
The funder underwrites the buyer's credit independently, so a first-time customer is fine as long as their credit checks out. A Fortune 500 buyer you've never sold to is often easier than a mid-market buyer you've worked with for years.
Two to three weeks from application to funding a supplier is typical. Repeat transactions on an established facility can fund in days.
You almost always need both. PO pays the supplier; factoring pays off the PO and gives you cash after you ship. Funding partners set them up together at close so the handoff is seamless.
Other comparisons
Funding Requirements Checklist for US manufacturers
See exactly what underwriters actually look at — for factoring, PO financing, equipment, working capital, ABL, and SBA — before you fill out a single application.
- What documents you need for each program
- Typical time-to-fund by program
- Common disqualifiers worth knowing up front
- How Manufactor Finance is compensated — $0 fees to you
Talk to a funding specialist
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