Purchase Order Financing: Complete Guide for Canadian Business Growth | 7 Park Avenue Financial

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YOUR COMPANY  IS LOOKING FOR INVENTORY AND

P.O. FINANCING IN CANADA! 

INFO ON HOW TO ACCESS PO FINANCING

UPDATED  05/21/2025

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        Financing & Cash flow are the  biggest issues facing businesses today 

                              ARE YOU UNAWARE OR   DISSATISFIED WITH YOUR CURRENT  BUSINESS FINANCING OPTIONS?

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Purchase Order Financing in Canada: A Complete Guide

Most Canadian business owners and financial managers probably don't know, in our opinion at least, that financing options exist in Canada for financing a customer's purchase order and the inventory required through purchase order financing company solutions.

When covering financing alternatives such as this with clients, we tend to group these two types of (relatively unknown) financing under the terms "alternative financing" and "asset-based lending." So how does purchase order financing work? Let's dig in!

Any company that requires funds to pay its vendors/suppliers for large or new contracts can benefit from PO finance.

Many suppliers require payment in full or in advance for a variety of reasons, one of which is often that they are outside of Canada and companies don't have established credit lines in place with that type of supplier. Another complication is that the end-user customer usually has additional payment terms for your business, further complicating the timeline!

From Order to Cash: Solving the Financing Gap

Winning big contracts should celebrate success, not create financial stress.

When customers place substantial orders, you need immediate funds for inventory and production costs. Traditional banks move too slowly, and your cash reserves can't cover everything.

Let the 7 Park Avenue Financial team show you how Purchase Order Financing transforms large orders into immediate working capital, letting you fulfill contracts confidently while preserving your business relationships and growth trajectory.

3 Uncommon Takes on Purchase Order Financing

1. The Relationship Preservation Angle: Purchase Order Financing isn't just about money—it's about maintaining trust with key customers. When you can't fulfill orders due to cash flow constraints, you risk damaging relationships that took years to build. This financing acts as relationship insurance, ensuring you never have to tell a valued customer "we can't deliver."
2. The Competitive Advantage Perspective: Many competitors can't take on large orders due to financing constraints. Purchase Order Financing becomes your secret weapon, allowing you to bid on contracts others must pass up. You're not just financing a transaction—you're financing market dominance.
3. The Cash Flow Optimization Strategy: Smart business owners use Purchase Order Financing even when they have adequate cash reserves. By preserving working capital for unexpected opportunities or emergencies, you maintain financial flexibility while using other people's money to grow your business.

Is Your Company Suited to Benefit from Purchase Order Finance?

If your firm is focused on funding growth, PO funding can assist you in a variety of challenging situations.

These include:

1. Bulk orders for large or new contracts, some of which might be seasonal in nature

2. PO lenders look favorably on companies with established and credible suppliers with good reputations

3. Many early-stage firms and start-up would typically not qualify for traditional financing

4. Financing purchase orders can help firms manage the supply chain and shipping timelines in the current economic environment

Bottom line -   PO Financing works!

What to Look for in a Purchase Order Financing Partner/Specialist

At 7 Park Avenue Financial, we focus on and have worked with companies in all industries.

No loan amount is too large, although it should be noted that very small purchase orders are often not good candidates for this type of business financing.

Rates and fees are higher in the PO finance environment, but our team will ensure you have access to the financing costs and terms. Purchase order financing for startups is often challenging but still possible.

Businesses should remember that the key elements of a solid PO funding deal must include a legitimate supplier and a creditworthy customer/end user.

Companies should be prepared for some level of common-sense due diligence around their transaction, including the vetting of their supplier and end-user customer.

Clients who typically have a need for inventory or purchase order financing have typically been unable to arrange traditional financing with their banks or other term lenders such as a more traditional financial institution.

PO financing covers the majority of the suppliers costs associated with your order. When to comes to large orders PO financing is a solid financial solution. Borrowers pay interest on only the funds drawn under the PO facility.

One of the most common needs that drives these types of financings is the global economy—what do we mean by that?

Simply that many clients are telling us that their new suppliers over the last several years are in the U.S. and China, and in some cases, Europe.

Naturally, it is obvious that suppliers in those countries are unable to extend credit to Canadian firms. You know what comes next! They require cash upfront in order to release goods—that's where purchase order finance comes in.

Even in the best of economic times, Canadian businesses would have a challenge in financing inventory and contracts, paying upfront, etc.

The years 2008–2009 and the start of 2022 certainly were hardly the best of times, so Canadian firms, especially small to medium-sized ones, face huge challenges in generating cash flow and working capital to fund inventory and purchase orders.

(Let's not forget that at that point you have only made the sale and now you have to wait 30-60 days or longer to get paid. Therefore, your investment in inventory and accounts receivable  becomes even greater.)

The Solution 

That solution is simple—consider inventory or purchase order financing as a mechanism to finance your business.

This type of financing can be arranged for firms of all sizes, will ensure your suppliers get paid promptly, and can generally be set up within a 30-day period if you employ the services of a trusted, credible, and experienced business advisor in this area.

HOW DOES PO FINANCING WORK?  

Any type of business financing requires a standard application process, i.e., info on your firm, its owners, your current financial position and prospects, etc.

Naturally, strong emphasis is placed on the actual orders and contracts themselves, or the type of inventory that you require that needs to be financed.

It is somewhat important that your clients and suppliers can be validated—i.e., are they legitimate companies who can either supply your firm, pay your firm, etc.?

A well-known name as a client or supplier certainly helps, but with the assistance of the internet, Dun and Bradstreet, and other sources, most companies can be validated today from anywhere!

When your purchase orders are financed, your suppliers are paid upfront on your behalf—you pay the purchase order firm generally as soon as you are able to generate a sale and receivable. For that reason, it is necessary to ensure you have either a banking or receivable financing/factoring facility in place.

What Is the Cost of PO Finance?  

Purchase order financing has a higher cost of finance than traditional financing, so it is also important that you have some good gross margin profit on your transactions, as those solid margins help offset the cost of the financing.

Case Study

Company: Canadian Manufacturer 

Challenge: Received a $500,000 government contract but lacked capital for component purchases

Solution: Secured Purchase Order Financing within 18 days

Results:

• Fulfilled contract on time and under budget
• Maintained $200,000 working capital for operations
• Strengthened supplier relationships through prompt payments
• Used success to secure additional government contracts
• Grew revenue by 45% within 12 months
• Established ongoing financing relationship for future opportunities

KEY TAKEAWAYS

• Customer creditworthiness drives approval - Strong customer credit profiles significantly increase approval odds and reduce financing costs

• Order legitimacy verification - Confirmed purchase orders from reputable companies form the foundation of this financing structure

• Supplier relationship management - Established supplier partnerships streamline the financing process and reduce lender risk

• Cash flow gap bridging - This financing specifically addresses the timing mismatch between order receipt and customer payment

• Asset-based lending criteria - Approval focuses on transaction strength rather than borrower credit history or business assets

• Operational capacity assessment - Lenders evaluate your ability to fulfill orders successfully and maintain customer satisfaction

• Cost structure understanding - Fees typically range 2-6% of order value, varying based on customer strength and fulfillment complexity

• Timeline management - Successful financing requires careful coordination between order fulfillment and customer payment schedules

• Risk mitigation strategies - This financing reduces cash flow risk while preserving working capital for other opportunities

• Growth facilitation - Large order financing enables business expansion beyond traditional working capital constraints

Conclusion - Purchase Order Financing Solutions/Trade Finance Solutions

PO financing is a solid cash flow/working capital solution to fund inventories and large orders and contracts for businesses that don't have established credit facilities in place to serve all their financing requirements.

The business challenge of receiving a large new order or contract can be stressful when business owners try to meet client demand. Any business in any industry that provides products to domestic or international clients can qualify—helping to guarantee sales success.

In summary, purchase order and inventory financing are becoming more popular in Canada, although many small business owners are still unfamiliar with this unique type of financing that can solve cash flow problems and pay suppliers.

While the financing is costly in terms of purchase order financing rates, it can nonetheless help you grow sales and profits significantly.

Call 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor, to determine if it's the right growth driver for your firm. Purchase order financing works and will help your business grow when you secure financing!

FAQ: Frequently Asked Questions/More Information/People Also Ask

What is purchase order financing?

Purchase order finance is a well-known business financing solution that allows businesses seeking financing that need to finance their purchases for orders or contracts. This type of funding can be used by any company that has outstanding orders. Businesses with purchase orders/contracts that need funding should consider purchase order finance. It is a quick and effective way to get the funding to efficiently satisfy client orders.

When a business needs to pay its suppliers, it often faces two problems. One is that the company doesn't have enough cash on hand or some other form of business credit/line of credit for this purpose. In Canada, companies can use EDC PO financing to fund international orders/international PO financing. Government purchase order financing is also available.

Is PO financing a loan?

PO finance is not technically a business loan, so there are no "PO loans" per se. It is the monetizing of a purchase order/commitment from a client. Unlike a business term loan, the transaction is typically closed within a 90-day period. Small business loans are usually term loans in structure or business credit lines.

What is PO Factoring/Purchase Order Factoring?

A factoring solution is the receipt of a cash advance payment from a business lender for unpaid invoices from a customer who has received goods and services from a business. Business owners must understand the difference between PO financing vs. factoring and invoice financing—in factoring, the transaction is closed when the customer pays.

What documents are required for the approval of purchase order financing and the funding process?

Borrowers should be prepared to provide the following information to the PO lender:

• Copy of the purchase order from your client

• Supplier invoice details

• Pro forma invoice to the end-user client

• Typical business credit profile information on your business—including financial statements, up-to-date tax filings, and owner information, are required for successful purchase order funding

Can purchase orders be used as collateral for funding for purchase orders?

A purchase order from a client is not necessarily viewed as business collateral—POs are simply the mechanism that allows PO financing companies/purchase order financing companies to fund the sale and delivery and invoice of goods.  

What types of businesses qualify for Purchase Order Financing?

Purchase Order Financing typically works best for businesses with established supplier relationships, creditworthy customers, and orders from reputable companies. Manufacturing, wholesale, and distribution businesses often find this financing most suitable, especially when dealing with government contracts or orders from well-known corporations.

How quickly can I access Purchase Order Financing?

Purchase Order Financing approval and funding can occur within 5-10 business days once you provide the necessary documentation. The speed depends on your customer's creditworthiness, your supplier relationships, and the complexity of your order fulfillment process.

What are the typical costs associated with Purchase Order Financing?

Purchase Order Financing costs vary based on the size of the order, your customer's credit profile, and the time required for completion. Fees typically range from 2-3% /mo of the order value, which includes assessment fees, interest charges, and administrative costs throughout the financing period.

Can I use Purchase Order Financing for international orders?

Purchase Order Financing can accommodate international orders, though additional considerations include currency exchange risks, international shipping requirements, and extended payment terms. Lenders typically require stronger documentation and may charge higher fees for cross-border transactions.

What happens if my customer delays payment?

Purchase Order Financing agreements typically include provisions for payment delays, but extended delays can result in additional interest charges. Your financing partner works with you to manage customer payment issues, often leveraging their expertise in collections and account management.

How does Purchase Order Financing improve cash flow management?

Purchase Order Financing provides immediate access to working capital tied to confirmed orders, allowing you to maintain steady cash flow throughout the fulfillment process. This financing eliminates the cash flow gap between order receipt and customer payment, enabling better financial planning and operational stability.

What's the difference between Purchase Order Financing and invoice factoring?

Purchase Order Financing provides capital before you complete the order, while Invoice Factoring converts completed invoices into immediate cash. Purchase Order Financing addresses pre-fulfillment capital needs, whereas factoring deals with post-delivery payment acceleration, serving different stages of the business cycle.

Can startups access Purchase Order Financing?

Purchase Order Financing is available to startups with confirmed orders from creditworthy customers, though lenders may require additional documentation or impose higher fees. Startups benefit from this financing because approval depends more on customer credit strength than business history, making it accessible for newer companies.

Citations / More Information

1. Canadian Federation of Independent Business. "Cash Flow Challenges in Small Business." CFIB Research Report, 2024. https://www.cfib-fcei.ca
2. Business Development Bank of Canada. "Alternative Financing Options for Canadian SMEs." BDC Economic Analysis, 2024. https://www.bdc.ca
3. Statistics Canada. "Business Financing in Canada: Trends and Challenges." Government of Canada, 2024. https://www.statcan.gc.ca
4. Export Development Canada. "Trade Finance Solutions for Canadian Businesses." EDC Market Research, 2024. https://www.edc.ca
5. Financial Post. "Working Capital Solutions for Growing Businesses." National Post, 2024. https://www.financialpost.com
6. 7 Park Avenue Financial." PO Financing & Inventory Finance Solutions." https://www.7parkavenuefinancial.com/p-o-financing-inventory-financing-a-business.html