July 2026 | AltFunds Global
By Taimour Zaman, Founder, AltFunds Global Corp. (Toronto) and AltFunds Global AFG AG (Zurich)
The short version
You hold a signed order from a real buyer. You have the supplier, the production plan, and the margin. You do not have the cash to build the thing your buyer has already agreed to pay for.
Purchase order financing exists for exactly that moment. It funds the supplier so you can fill the order, and the buyer's payment retires the facility.
It is also the most mislabelled product in trade finance. Factoring, bridge lending, and revenue advances all get sold under the same name, and they are not the same thing. Picking the wrong one costs you the margin on the order, and sometimes the order.
This is the version of the conversation we have on the phone. Written down.
Why do people ask us about this
Because the order is the easy part and everyone assumes the capital will follow it.
An operator wins a contract with a distributor or a retailer or a government agency. The order is real. The margin is real. Then they discover their supplier wants sixty percent up front, their bank sizes the line against last year's balance sheet rather than this year's contract, and the gap between the two is the whole deal.
This is the client we work with. Already approved for part of it. Someone has said yes to a piece, then said the rest has to come from somewhere else, and the pricing on that gap piece does not make the math work. They are not in trouble. They have momentum. They just do not have a full stack.
What purchase order financing actually is
A capital provider pays your supplier so you can fulfill a confirmed order. You have a contract. You do not yet have goods and you do not yet have an invoice. Capital is deployed against the order itself.
The defining feature is the exit. In a structured purchase order facility, the buyer's commitment is the repayment event. The provider is not taking a view on your sales pipeline or on a refinance that may never close. They are funding against an obligation that already exists: a named buyer, with checkable credit, who has agreed in writing to take delivery and pay.
The exit is in place before the capital moves. Everything in the file exists to prove that the exit is real.
The mechanics, with the numbers
Here is what the structure looks like in practice, rather than in a brochure.
Advance rate. Typically seventy to one hundred percent of verified supplier cost. Note that the advance is against what you pay the supplier, not against the order value. On a $1,000,000 order costing you $700,000 to fill, the facility is sized against the $700,000.
How the money moves. In most cases the provider does not wire you the cash. They pay the supplier directly, often through a letter of credit or a documentary instrument. This is deliberate. It removes the diversion risk that would otherwise sit in the middle of the transaction, and it is one reason the structure prices where it does.
Cost. Generally quoted per thirty-day period rather than as an annual rate. The range is wide, roughly two to six percent per period depending on the buyer's credit, the goods, the jurisdiction, and the tenor. Read every quote as a total cost to fill the order, not as an interest rate, because that is how it behaves.
Margin threshold. Most providers want gross margin above roughly twenty percent. Below that, the cost of the facility eats the profit on the order and the deal stops making sense for the operator. A good provider will tell you this early. A bad one will fund it anyway.
The takeout. Once you deliver, the order becomes an invoice. Very often the invoice is then factored, and the factoring proceeds retire the purchase order facility. The two products run in sequence on the same deal. This confuses people into thinking they are the same product. They are not.
Security. UCC filings under Article 9 in the United States, or the local equivalent, establishing position over the inventory and the resulting receivable.
The rule nobody tells you: finished goods versus manufacturing
This is the single largest cause of a decline, and it usually arrives after the operator has spent weeks on the file.
Most purchase order providers strongly prefer finished goods. You order from a supplier, the supplier ships, the buyer receives. There is a clean chain and a short window where the goods exist as identifiable collateral.
Manufacturing is a different risk. If the capital funds raw materials that get cut, welded, assembled, and transformed into something else over ninety days, the provider is now carrying production risk. Machines break. Labour walks. Half-built inventory has almost no salvage value. A lot of providers simply will not do it, and many operators do not discover this until they are deep into the process.
If your order requires real manufacturing rather than procurement and resale, say so in the first conversation. It does not kill the deal. It changes which desks you should be talking to and how the structure has to be built.
What it is not
Not factoring. Factoring and purchase order financing sit on opposite sides of delivery. Factoring works after you have shipped: you hold an invoice and you sell that receivable for cash today. Purchase order financing works before you ship. If you have delivered and you are waiting to be paid, factoring is the conversation. If you cannot deliver because you cannot fund production, factoring does nothing for you.
Not a bridge loan. A bridge is repaid by a future event that has not happened yet, usually a refinance or a sale, and the lender is taking a view on whether that event closes. A purchase order facility is built on a commitment that exists today. That changes who carries the uncertainty. A bridge asks you to promise a future close. This asks you to prove a present obligation.
Not a revenue advance. Revenue advances repay from general cash flow, a slice of everything coming through the door, untied to any specific contract. Purchase order financing is tied to one order, one buyer, one exit. If you have predictable recurring revenue and want growth capital against it, that is a different program.
What the file has to prove
A confirmed order is the starting point, not the finish line. Five things:
- Onboarding and confidentiality. KYC on the principals, an NDA, and where the structure calls for it, a joint venture agreement.
- The orders themselves. Purchase orders and supplier agreements showing both ends of the transaction.
- Proof of the exit. The buyer commitment demonstrating the repayment event is real and already in place. Non-cancelable matters here. An order the buyer can walk away from at will is not an exit.
- The buyer's standing. A credit rating or bank statement confirming the buyer can actually pay on delivery. This is the underwrite. Your balance sheet matters less than theirs.
- The legal layer. UCC filings, liens, and the documents that establish position.
Every item has one thing in common. None of it is about persuading anyone. It is verification, not application. The file either proves a real buyer with a real obligation, or it does not.
Timelines on structured transactions of this kind run 20 to 120 banking days depending on the buyer, the jurisdiction, and how complete the file is on arrival. A clean file moves. A thin one waits while the gaps get filled.
Why operators get this wrong
The confusion is not the operator's fault. The market sells these instruments interchangeably because for the seller they all generate fees. A factoring desk will call a purchase order problem a factoring problem. A bridge lender will reframe your order as collateral for a bridge. Each is fitting your deal to the product they happen to sell.
The cost of the mismatch is real. Take a bridge against an order and you now carry a repayment event that depends on a refinance, when the order was the cleaner exit all along. Reach for factoring before delivery and there is nothing to factor yet. Pull a revenue advance against one large contract and you have priced general cash flow risk into a deal that never carried it.
Name the situation precisely, then choose the instrument that fits. An order you cannot fund is a purchase order financing situation. A delivered order you are waiting to collect on is a factoring situation. A business with steady revenue seeking growth capital is a third thing entirely. Clarity on which one you are in is worth more than any rate quote.
Where we fit
We are not the buyer and we are not the lender. We are a global financial advisory firm operating from Toronto, Canada and Zurich, Switzerland, working with capital sources across North America, Europe, and the Gulf, on transactions from $1 million to $500 million, with a broker network of more than 900 intermediaries.
On a purchase order file that means three things. We test whether the order is genuinely fundable before anyone spends money, which includes telling you early if the margin is too thin or the manufacturing profile is wrong. We build the file so a provider can verify the buyer and the exit without a second round of questions. And we place it with a desk whose mandate actually matches the goods, the buyer, and the jurisdiction.
Taimour Zaman is the Founder and Chief Capital Strategist of AltFunds Global. He is the author of Structured Finance Demystified and has been featured in TechTimes, Investment Executive, UK Entrepreneur, and Private Banker International.