Inventory And P O Financing Canada | 7 Park Avenue Financial

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PO Financing & Inventory Finance in Canada
Looking for The Skinny on  Funding Purchase Orders ? We've Got It





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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 inventory  required via the purchase order financing company solution. 


In covering off financing alternatives such as this with clients we tend to lump these two types of (relatively unknown) financing in with 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 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 end-user customer usually has additional terms to pay your business - further complicating the timeline!




If your firm is focused on funding growth PO funding can assist you in a variety of challenging situations - These include


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

2. The PO lender looks favourably on companies with established and credible suppliers with good reputations

3. Many firms that are early stage 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





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 credit-worthy 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.


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 business would have a challenge in financing inventory and contracts, paying upfront, etc. 2008 – 2009 and the start of 2022  certainly is hardly the best of times, so Canadian firms, especially small to medium size, 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 receivables becomes even greater.


What is 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, it will ensure your suppliers get paid promptly and can be generally set up within a 30-day period if you employ the services of a trusted, credible and experienced business advisor in this area.


So what is involved in P.O. financing and inventory financing and how does it 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 have the ability to 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




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.


guide to purchase order financing and funding




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 and 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 when it comes to purchase order financing rates it can nonetheless help you grow sales and profits tremendously. Investigate this financing with 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!



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 purchasing 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?


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  - 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?


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Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil