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Purchase order finance bridges the gap between order and payment and has the advantage of being faster and easier to obtain than a traditional bank loan.

A purchase order loan is based on the creditworthiness of your buyer (customer) and your business.

• Is designed specifically to help wholesalers and distributors who resell products to commercial customers.
• Is used by companies who need funds to pay suppliers
• Helps companies grow past their financial limitations

Businesses in South Africa often face problems when they try to secure large orders from new customers.

Competing for new business is a difficult process in itself since customers are constantly looking for the lowest price. Another challenge is getting the capital to buy supplies or products to deliver on the new orders.

Your SME (Small to Medium Enterprise) may be in a position where it is not able to fulfil a customer’s order because it does not have the materials in stock or the cash to acquire them. When this happens, the business risks losing both the order and the customer. That’s where purchase order finance can help.  

Purchase order funding (otherwise known as Tender Finance) in South Africa has become a popular way to finance a company that has received a large purchase order from a customer. This is one step before the invoice is generated.

A Purchase Order (PO) is a formal document issued by a buyer to a seller, detailing the types and quantities of goods or services agreed upon for purchase at specified prices. This document is crucial for tracking the purchasing process, ensuring both parties are clear on the terms of the transaction. When a company issues a PO to another company, it’s essentially making a formal request for goods or services, including detailed specifications and pricing. Upon acceptance by the seller, the PO becomes a legally binding contract, obligating the seller to deliver the specified goods or services at the agreed prices.

POs are not only instrumental in the procurement process but also serve as a legal safeguard for both buyers and sellers, clarifying the terms of the deal and protecting the interests of both parties. Furthermore, they play a significant role in helping businesses manage their cash flow and inventory needs.

For companies facing financial constraints, Purchase Order Funding offers a solution. This type of funding provides the capital needed to pay suppliers upfront, enabling businesses, particularly wholesalers and distributors, to fulfill large orders without depleting their cash reserves. It’s an essential tool for businesses looking to expand without the burden of traditional financing methods.

Alternative lenders have emerged as key players in providing this financial support, especially to SMEs that may not have the trading history or capital required by traditional banks. These lenders assess the viability of funding based on the purchase order itself and the buyer’s creditworthiness, offering a lifeline to businesses that need to fulfill orders but lack the necessary funds. This approach allows SMEs to grow and meet market demands effectively, bridging the gap in financial assistance and enabling business expansion.

A Purchase Order (PO) is an official document issued by a buyer to a seller detailing the specific goods or services to be purchased at agreed prices. It serves not only as a record for the purchasing process but also, once accepted by the seller, becomes a legally binding contract that outlines the obligations of both parties. This process is crucial when one company wishes to buy goods or services from another, providing a clear, structured, and legally enforceable method for conducting business transactions.

Purchase Order Funding is a specialized type of business loan designed to help companies, especially wholesalers and distributors, fulfill large orders when they lack the upfront capital to pay their suppliers. This funding is based on the customer’s submitted PO, making it a viable solution for businesses facing financial limitations. It enables companies to grow by allowing them to take on larger orders and ensure timely delivery to their customers.

Types of Purchase Orders You Can Finance:

• Supply and Delivery of Goods: This category includes a wide array of goods like electricity, gas, wholesale items, and printing services. The requirement for borrower experience varies, with some lenders demanding minimal to no experience for financing.

• Supply of Services: Encompasses services such as construction, installation, manufacturing, facilitation, and labor. These services generally require the borrower to have a certain level of experience, particularly in areas like construction and manufacturing.

It’s important to remember that Purchase Order Funding is contingent on the PO being a firm commitment from your customer. This means you must demonstrate that the order is legally binding, ensuring the customer is obligated to pay once the order is completed. This financing option opens doors for many SMEs that lack a long-standing trading history or the necessary capital, allowing them to fulfill orders and pursue growth opportunities.