Purchase order (PO) finance is a funding option for a supplier that allows them to collect an advance on a purchase order. The advanced financing provides the supplier the cash needed to deliver the product or service. The supplier in need of the cash advance may pay the financing company through fees incurred during invoice collection or interest on a credit line. It lowers working capital costs across the supply chain.
It is expected that financing will be needed further up the supply chain in a circular economy. PO financing can serve as a type of legal commitment between supply chain players that mitigates default risk and allows capital to flow to the beginning of the supply chain.
Establishing this type of financing relationship across the supply chain would likely improve trust across the parties in the future, further reducing risk and associated costs.