When to Use PO Financing (and When Not To)
PO financing gets called 'the growth capital nobody knows about'—until they need it. It solves one specific problem: you've won an order too big to buy the materials for. It doesn't solve payroll, overhead, or general working capital.
Textbook use case
You produce contract manufacturing at 28% gross margin. A distributor sends a $600k PO with net-45 terms. Your suppliers need $340k up front. Your line of credit tops out at $150k. PO financing pays your supplier directly (often via LC), you produce and ship, factor the invoice on delivery, and net the difference minus roughly 4–5% combined cost.
What breaks PO financing
Three deal-killers we see constantly:
- Gross margin under 20% — the combined cost eats the deal
- End buyer isn't creditworthy — the whole structure hinges on them paying
- Custom/one-off production with no salvage value if the buyer walks
The stack
PO finance covers materials. Factoring picks up when you invoice. Both funders coordinate the payoff at delivery. When it's structured well, you take on the big order without touching your existing line.