Purchase order financing, also known as PO financing, gives you the ability to pay your suppliers for the goods you need to fulfill outstanding customer orders. This type of financing can make sense for small businesses that receive more sales and orders than they have inventory or cash to complete — and don’t want to turn customers away.
Here’s what you need to know about purchase order financing, how it works and where to get it for your business.
What is purchase order financing?
Purchase order financing is a cash advance that small-business owners can receive on their purchase orders. With PO financing, a lender will pay your third-party supplier up to 100% of the costs required to produce and deliver the agreed-upon goods to your customer.
Once your customer receives the goods, you invoice them for the fulfilled order, and they pay the purchase order financing company directly. Then, the PO financing company deducts its fees and pays you the rest.
How does purchase order financing work?
With traditional small-business loans, only two parties are involved: you, and the lender issuing the funding. When you enter into a purchase order financing agreement, however, you’ll typically work with the following parties throughout the process:
Your company/the borrower: You, who is seeking financing to fulfill a purchase order for your business.
Purchase order financing company: The company offering the financing. This company verifies your purchase order and provides funds to the supplier.
Supplier: The third party that supplies or manufactures the goods that you resell or distribute. The supplier receives payment for its goods from the purchase order financing company directly.
Customer: Your customer, the party trying to buy the goods. In a purchase order financing arrangement, after your customer has received their goods, they typically pay the financing company directly.
Here’s a breakdown of how purchase order financing works:
You receive a purchase order. Your business receives a large order from a customer, but you don’t think you have the inventory or cash on hand to fulfill it.
You determine the costs. You reach out to your supplier to determine how much it will cost to complete the order. Based on the cost assessment your supplier provides, you can confirm whether you’ll need to apply for financing to fulfill the order.
You apply for purchase order financing. After you’ve decided that you need PO funding, you’ll want to find the right purchase order financing company, submit an application and, hopefully, receive approval. You should submit the purchase order and the supplier’s cost estimate as part of your application. The financing company may approve you for up to 100% of the supplier’s costs, depending on your business’s qualifications, the supplier’s track record and reputation, and the customer’s creditworthiness. It’s important to note that if the financing company approves you for only a percentage of funding — say, 90% of the supplier’s costs — you’ll be responsible for covering the remaining 10% on your own.
The purchase order financing company pays the supplier. Once you’ve been approved, the purchase order financing company will pay your supplier to manufacture and deliver the goods that are needed to fulfill the customer’s purchase order. Many financing companies will pay suppliers using a letter of credit — an official bank guarantee that payment will be made once certain conditions are met — in this case, once the goods have been shipped and proof of shipment has been provided.
The supplier delivers the goods to the customer. The supplier ships the goods directly to the customer. Once the customer receives the goods, the order is complete.
You invoice the customer. After the customer receives the goods, you send them an invoice for the order. You also send the invoice to the purchase order financing company.
The customer pays the purchase order financing company. The customer pays the financing company directly for the full price of the invoice.
The financing company deducts its fees and transfers your funds. After receiving payment from the customer, the purchase order financing company deducts its fees and pays you the remaining balance from the proceeds.
How much does purchase order financing cost?
Purchase order financing fees typically range from 1% to 6% per month and are usually priced on a per-30-day period. These fees are charged on the total of the supplier’s costs, but generally increase the longer it takes your customer to pay their invoice.
Say, for example, you have a purchase order financing agreement in which the supplier is paid $100,000. The financing company charges a fee of 2% per 30 days. If it takes your customer 30 days to pay their invoice, your total fees are 2% of $100,000, or $2,000. If it takes your customer 60 days to pay their invoice, on the other hand, your total fees equal 4% of $100,000, or $4,000.
These fees may seem low; however, since they’re not traditional business loan interest rates, it’s important to calculate them into annual percentage rates to understand the true cost of the financing. APRs on purchase order financing often fall upward of 20%.
Some purchase order financing companies may also use a rate structure in which you receive a set fee for the first 30 days and then a lower rate for a specified number of days until your customer pays.
For instance, a company may charge 3% per 30 days and then 1% per 10 days thereafter, or 3% per 30 days and then 0.1% per day thereafter.
The purchase order financing fees that you receive will ultimately depend on factors such as your business’s qualifications, your customer’s creditworthiness and the reputation of your supplier.
Advantages and disadvantages of purchase order financing
Allows you to take on customer orders you couldn’t otherwise fulfill. Purchase order financing can be a good option for seasonal businesses, or those that are growing quickly and need extra capital to fulfill large orders from customers. Similarly, this type of financing can be worthwhile for businesses that are experiencing a cash flow shortage and could benefit from an order that would generate significant revenue.
Can be easier to qualify for than other types of business financing. Many purchase order financing companies focus on the creditworthiness of your customers and the reputation of your suppliers first and foremost when evaluating your business’s application for funding. Although these companies will still consider your business’s financials and credit history, it may be easier for startups and businesses with bad credit to qualify compared with other types of business funding.
Doesn’t require budgeting monthly or weekly loan payments. Although you’re borrowing money, purchase order financing isn’t technically a loan, so you don’t have to worry about paying back funds in monthly or weekly installments — like you would with a business term loan.
Can be expensive. Purchase order financing fees may seem competitive at first glance — typically ranging from 1% to 6% of the total supplier’s costs per month — but when you calculate these fees into an APR, rates can turn out to be much higher. Anecdotally, they can range from 20% to upward of 50%.
Reliance on customers. The amount you pay in fees is based on how long it takes your customer to pay their invoice, meaning it’s difficult to estimate the total cost of purchase order financing upfront. Plus, to access PO financing, you must rely on your customer’s creditworthiness (on top of other factors) in order to qualify.
Loss of control. With purchase order financing, the company you work with manages a significant amount of the process — including paying your supplier and collecting payment from your customer. Your supplier also ships goods directly to your customer, meaning you don’t have your hands in that part of the process, either. Although this may save your business time, it might also mean processes are not handled in the way you prefer, which could potentially risk relationships with your suppliers or customers.
Where to get purchase order financing
Purchase order financing is usually offered by online financing companies, many of which specialize in this type of business funding. Some banks may offer PO financing for existing customers or larger-scale clients, but they don’t typically advertise or offer these services for small businesses.
If you’re looking for a place to start your search, here are a few of the best purchase order financing companies to consider:
SMB Compass. SMB Compass offers PO financing in amounts that typically range from $25,000 to $10 million, with rates from 1.5% to 3.5% and a funding timeline of less than 30 days. The company also offers other types of business loans, including inventory financing, invoice financing and equipment financing.
PurchaseOrderFinancing.com. As the name implies, this company focuses exclusively on PO financing, offering up to 100% funding of your supplier costs for amounts of $500,000 to $25 million. PurchaseOrderFinancing.com doesn’t specify its fees online — the company only states that it gets “a small percentage of the profit you make on the specific deal being financed.” After you’ve started the application process, you can expect a response from PurchaseOrderFinancing.com within approximately 72 hours, and qualified businesses can fund between seven to 14 days.
King Trade Capital. According to its website, King Trade Capital is the largest purchase order financing company in the U.S., providing funding to small- and medium-size businesses across the country. Unfortunately, King Trade doesn’t provide many details about its services upfront, but interested businesses can submit a funding request for more information through the website.
Liquid Capital. Liquid Capital specializes in asset-based financing solutions, such as purchase order financing, invoice factoring and inventory financing. Liquid Capital’s purchase order financing covers up to 100% of supplier costs, offering up to $10 million in funding. Qualified businesses can receive financing in as little as 24 hours. Although the company says there are no hidden terms with its funding, it does not provide information about fees or rates on its website.
How to choose a purchase order financing company
As you compare different options, you can ask the following questions to find the right purchase order financing company for your business:
How often does the company handle purchase order financing agreements?
Does the company have experience working with businesses in your industry?
How long has the company been in business?
Do you need to meet a minimum funding amount to work with the company?
How does the company pay suppliers? Does it use letters of credit?
How does the company receive payment from your customers?
Does the company contact your customers directly? If so, how?
What happens if your customers fail to pay?
What kind of vetting process will it perform on your suppliers and customers?
How quickly will you receive your funds?
Fees and other requirements
What are the typical fees and how do they break down?
What percentage of supplier costs does the company offer as an initial advance?
Does the company require a personal guarantee?
What type of documentation (e.g., tax returns, financial statements) is required for the application?
Find and compare small-business loans
If purchase order financing isn’t right for you, check out NerdWallet’s list of the best small-business loans for business owners.
Our recommendations are based on the market scope and track record of lenders, the needs of business owners and an analysis of rates and other factors so you can make the right financing decision.
How to Find the Right Business Coach — and Avoid the Wrong One
At its best, business coaching can connect you with a mentor and supporter who helps you generate ideas, make plans and execute on them.
But at its worst, a business coaching offer can cost you time, energy and money — without much to show for it.
Here’s what to expect from a business coach, how to find a coach that suits you and how to spot red flags.
What a business coach can do
Business coaches draw on their professional experience to help you set and achieve your own business goals.
“I’m here to help you, and I’m here to raise your level of knowledge in whatever way I can,” says Gary Robinson, who chairs the Memphis, Tennessee, chapter of SCORE. SCORE offers free business mentoring for entrepreneurs nationwide.
Some ways a business coach or mentor might do this include:
Offering feedback on your ideas and suggesting new ones.
Giving you templates and other tools that help you make plans.
Connecting you with resources in your region or your industry.
Giving you deadlines and holding you accountable to them.
Some business coaches may also offer coursework or group training sessions on particular topics, like sales.
Working with a coach should help you identify opportunities you hadn’t seen before or develop new strategies for pursuing those opportunities, says Sophia Sunwoo, who coaches women and nonbinary entrepreneurs through Ascent Strategy, her New York City-based firm.
“[Coaches] don’t necessarily have to have all the answers,” Sunwoo says. “But they are the people that know how to maneuver and create a bunch of different thinking paths for their clients.”
What a business coach can’t do
A business coach isn’t the same as a consultant, whom you would hire to perform a specific task. A coach or mentor could look over your business plan, for example, but they wouldn’t write it for you.
“If you were to hire me as a consultant, you would expect me to roll up my sleeves and pitch in and work with you to get things done, and you would pay me for that,” Robinson says. Coaches, on the other hand, “try to show you how to do things so that you can do them [yourself].”
Business coaches are also not therapists, Sunwoo says. Entrepreneurship can be emotionally and mentally taxing, but it’s important that coaches refer clients to mental health professionals when necessary.
Business coaching red flags
If a business coaching opportunity “promises guaranteed income, large returns, or a ‘proven system,’ it’s likely a scam,” the Federal Trade Commission warned in a December 2020 notice.
In 2018, the FTC took legal action against My Online Business Education and Digital Altitude, which purported to help entrepreneurs start online businesses. The FTC alleged these companies charged participants more and more money to work through their programs, with few customers earning the promised returns.
In both cases, these operations paid settlements, and the FTC issued refunds to tens of thousands of their customers in 2021 and 2022.
To avoid offers like these, the FTC recommends that you:
Be wary of anyone who tries to upsell you right away or pressures you to make a quick decision.
Search for reviews of the person or organization online.
Research your coach’s background to see if they’ve accomplished as much as they say.
Sunwoo says to also be skeptical of one-size-fits-all solutions. A coach should customize their advice to your personality and skill set, not ask you to conform to theirs.
“The moment that a business coach pushes you to do something that is really not compatible with your personality or your beliefs or values,” Sunwoo says, “that’s a huge problem.”
How to find the right coach — maybe for free
Here’s how to find a coach that will be as helpful as possible.
Determine whether you need advice or to hire someone. A coach isn’t the right fit for every business owner. If you need hands-on help organizing your business finances, for instance, you may need a bookkeeping service or accountant. And take legal questions to an attorney.
Seek out the right expertise. A good coach should be aware of what they don’t know. If they’re not a good fit for your needs — whether that’s expertise in a particular industry or a specialized skill set, like marketing — they might be able to refer you to someone who’s a better fit.
Consider free options. There may be some in your city or region:
SCORE offers free in-person and virtual mentoring in all 50 states, plus Guam, Puerto Rico and other U.S. territories.
See if your city has a Small Business Development Center, Veterans Business Outreach Center or a Women’s Business Center. All are funded by the U.S. Small Business Administration and offer free training and advising for entrepreneurs.
Do an online search for city- or state-specific programs. Philadelphia, for example, offers a business coaching program designed for entrepreneurs who want to qualify for particular business loan programs. Business incubators often offer courses or coaching.
Make sure your coach is invested in you. They should take the time to learn about you, your business and its unique needs, then leverage their own experiences and creativity to help you.
“I’m on your team now,” Robinson says of his clients. “Let’s do this together and make this a success.”
Are There SBA Loans for the Self-Employed?
Many of the same SBA loans are available to both self-employed people and more formally structured businesses, such as limited liability companies and corporations. However, self-employed individuals, like sole proprietors and independent contractors, might face a higher barrier to entry for having limited credit history, inconsistent revenue or no collateral. If they can’t qualify for an SBA loan, other business financing options are available.
Who qualifies as self-employed?
Sole proprietors, independent contractors and partnerships all fall under the self-employed category. In these cases, there is no legal distinction between the business owner and the business itself. Sole proprietors, for example, are solely responsible for their business’s gains and losses, while LLCs and corporations are legally distinct from their owners. This distinction helps protect the owners’ personal assets if their business runs into legal or financial issues.
Are self-employed SBA loans hard to get?
While a sole proprietorship is much easier to set up than an LLC or corporation, lenders may be more hesitant to finance them for a few reasons:
Self-employed business owners are legally responsible, as individuals, for any debt and liabilities that their businesses take on. If someone sues their business, for instance, their personal assets — not just their business — could be at stake. This makes it riskier for lenders to finance them.
Sole proprietorships and independent contracting businesses may have lower revenue or less collateral to offer since they’re often a business of one. This could make it more difficult for them to prove that they can pay back the loan, plus interest. And it may require more paperwork.
Some banks set lending minimums that surpass what a self-employed business owner is looking for, either because the business owner doesn’t need that much funding or doesn’t qualify for it.
Since there is no legal distinction between the self-employed business owner and their business, they may lack business credit history. To establish business credit, you’ll want to register the business, obtain an employer identification number and open a separate business bank account and credit card to keep your business and personal finances separate.
SBA loans for the self-employed
SBA microloan: Best for small loans and more lenient requirements
Applying for an SBA microloan is a great option for self-employed business owners, especially if they’ve been turned down by traditional banks and don’t need more than $50,000 in funding. In fact, the average SBA microloan is around $13,000, according to the SBA. SBA microloans are administered by nonprofit, community-based organizations that can also help train applicants in business practices and management. And because the loans are small, the application process may be easier — applicants may have limited credit history and typically don’t need as high of a credit score as they do for an SBA 7(a) loan.
SBA 7(a) small loan: May not require collateral
Funds from the SBA’s most popular 7(a) lending program can be used for a variety of business-related purposes, such as working capital or purchasing equipment. While the maximum SBA 7(a) loan amount is $5 million, SBA 7(a) small loan amounts don’t exceed $350,000. And if the 7(a) small loan is for $25,000 or less, the SBA doesn’t require lenders to take collateral.
SBA Express loan: Best for quicker application process
SBA Express loans are a type of 7(a) loan for businesses that need quick financing and no more than $500,000. The SBA responds to these loan applications within 36 hours as opposed to the standard five to 10 days, which may speed up the process for borrowers working with non-SBA-delegated lenders. Additionally, borrowers might not have to fill out as much paperwork — the SBA only requires Form 1919. Beyond that, lenders use their own forms and procedures.
SBA loan alternatives
Self-employed business owners turned down for SBA or traditional bank loans may be able to qualify for financing with an online lender. These lenders offer options such as term loans and lines of credit, and they often process applications faster and have more lenient requirements. However, applicants should expect to pay significantly more in interest than they would with an SBA loan.
Business credit cards
Not only can business credit cards help build your business credit history and pay for everyday business purchases, but they can also help finance larger purchases (within your approved credit limit). And if you qualify for a credit card with a 0% introductory APR offer, you’ll have multiple months to pay off the balance interest-free. Just make sure you’re able to pay off your purchase before the intro offer ends and a variable APR sets in.
9 Best Factoring Companies for Trucking
Factoring companies for trucking, also called freight factoring companies, give trucking companies cash in exchange for outstanding invoices. They can be helpful to trucking companies that need working capital quickly or don’t have the staff to manage invoicing and collections, but be cautious about potentially unclear costs and contracts.
Here are our picks for freight factoring companies, as well as additional information to help you decide whether this kind of small-business loan is right for your business.
Best trucking factoring companies for funding speed
These factoring companies for trucking offer some of the fastest funding times.
Time to funding: Minutes via its proprietary Blynk payment service; otherwise, same-day and next-day funding.
Good to know: Company factors freight invoices on nights, weekends and holidays. Its proprietary Blynk payment service, launched in 2020, allows customers to get paid via debit, Zelle or bank transfer. Apex specializes in small and midsize trucking companies.
Headquarters: Fort Worth, Texas.
Time to funding: One hour during the week.
Good to know: Company’s mobile app allows customers to submit invoices to be paid right from a smartphone. TAFS is a recourse-only factoring company, meaning that if the customer ultimately doesn’t pay your invoice, you pay the factoring company. In other words, you bear the risk of nonpayment. TAFS does factoring in several other industries too.
Headquarters: Olathe, Kansas.
Time to funding: Within 24 hours.
Good to know: Offers discounts to veterans. Also does factoring in distribution, staffing, oilfield, textiles and manufacturing industries. The company’s RTS Pro Factoring app lets customers upload invoices, submit invoices in bundles, use the camera to scan invoices and access reports. It also helps find fuel, tire and maintenance discounts.
Headquarters: Overland Park, Kansas.
Time to funding: The same day you deliver your load.
Good to know: TBS offers a program in which you can finance 50% of your truck insurance down payment through eight weekly payments from your factored invoices. The company also offers bookkeeping services.
Headquarters: Oklahoma City.
Best for trying freight factoring for free
These factoring companies for trucking offer customers a chance to use the service before fully committing.
Time to funding: First funding takes up to 48 hours but subsequent invoices process faster.
Good to know: Customers get an automatic, preapproved line of credit of up to $2,500 per truck. Transferring money from eCapital to your bank account is $10. The company also offers a 90-day free trial. Fees start at 2%.
Headquarters: Aventura, Florida.
Time to funding: Typically within 24 hours.
Good to know: Company says a $1,000 invoice will likely cost $25 to $40 (2.5% to 4%) in factoring fees. It also waives the factoring fees for your first invoice as sort of a free trial.
Headquarters: Carlsbad, California.
Best for upfront factoring pricing
Few factoring companies for trucking disclose their prices. These companies offer at least a peek.
Time to funding: Within 24 hours.
Good to know: Company does recourse and nonrecourse factoring. OTR Capital says it funds 96% of the invoice value, implying a 4% fee.
Headquarters: Roswell, Georgia.
Porter Freight Funding
Time to funding: Within 24 hours and sometimes sooner.
Good to know: Discounts available if you sign a six-month or one-year contract. Recourse factoring fees start at 3%.
Headquarters: Birmingham, Alabama.
Time to funding: Same day.
Good to know: Fees start at 2%. Works with startups and trucking companies with one to 100 trucks. No mobile app available.
Headquarters: Weatherford, Texas.
What is freight factoring?
Freight factoring is a process in which a factoring company buys your invoices at a discount and collects payment from the customers on those invoices. The arrangement creates a source of fast cash for the trucking company.
There are two types of factoring companies for trucking:
Recourse factors. If the customer ultimately doesn’t pay the invoice, the trucking company pays the factoring company. The trucking company bears the risk of nonpayment.
Nonrecourse factors. If the customer ultimately doesn’t pay the invoice, the trucking company doesn’t have to pay the invoice. The factoring company bears the risk of nonpayment, which is why nonrecourse factoring typically costs more than recourse factoring.
Do I need a factoring company for trucking?
A factoring company for trucking can be a source of quick cash, which could come in handy if a trucking company is having trouble making payroll or paying other bills, or if it doesn’t want to take out a loan or other financing. In addition, companies that don’t have the time or staff to deal with collecting money from customers might find factoring attractive.
Flexible — factor only what you need when you need it.
Credit score doesn’t matter.
May cost more than bank financing.
Company may come after trucking company if customers don’t pay.
How much do factoring companies charge?
Trucking factoring companies buy accounts receivable at a discount, meaning that trucking companies selling invoices won’t receive the full value of those invoices. The size of that discount is one of the key factors to consider when choosing a factoring company for trucking.
However, it’s rare to get an upfront price from factoring companies because they typically base their discount rates on a variety of factors:
Whether you want recourse or nonrecourse factoring.
Who your customers are.
The volume of the invoices.
Whether you want to pay a flat factoring fee (the same percentage fee for every invoice) or a tiered factoring rate (a lower fee on invoices that pay quickly and a higher fee on invoices that pay more slowly).
Whether the company also charges invoice submission fees or invoice processing fees.
For these reasons, it’s important to review the contract terms of any factoring agreement and make sure you understand the costs before you sign up.
Alternatives to freight factoring
Freight factoring is just one way to borrow money quickly. These other options might be viable alternatives for your trucking business.
Business credit cards
Borrowing money using a credit card gives you the opportunity to keep 100% of what your customers pay you. Credit cards can carry various rewards, such as travel miles or cash back, and a business gas credit card may make sense for a trucking company. But be sure you can pay your credit card balances off in full, because the interest charges may be higher than what you’d pay in factoring fees.
Business line of credit
If you need access to ongoing working capital, drawing from a business line of credit might be cheaper than factoring to cover short-term costs. You’ll likely have a higher spending limit with a line of credit than with a business credit card, but there may also be higher qualification hurdles to jump in terms of credit score and financial performance.