How Purchase Order Financing Rates Work

Purchase order (PO) financing has been gaining popularity as a way to finance product re-sellers and wholesalers that have large purchase orders. The solution has a number of advantages which makes it an effective way to finance growing companies that lack working capital.

If you want to learn how PO financing works, please review our po financing learning section.

Understanding the rates

Most purchase order financing companies charge rates based on utilized funds. Utilized funds are the funds outstanding that were used to pay your supplier. For example, if the PO financing company needs to pay $100,000 to your supplier (on your behalf), their rate is based on $100,000.

Many finance companies use a tiered structure when dealing with large purchases that have milestones. For example, let’s say your company is buying $1,000,000 worth of product. They are paying for it in three installments: a 20% deposit, 30% at mid-point, and the remaining 50% at shipping.

Since each payment occurs at a different time, the finance company may choose to finance each payment independently. This approach is to your advantage as it costs less.

Average purchase order financing rates

Purchase order financing rates average 3% per 30 days on the utilized funds. Rates can go a little higher or lower based on the transaction.

Rates vary based on the size and complexity of the transaction. Rates also vary based on the reputation of the company that manufactures your products and the client making the end purchase.

Rate structure

Each purchase order financing company structures its proposals differently; however, the following models are common. These examples assume a rate of 3% per 30:

  • 3% for the first 30 days, 1% per 10 days thereafter
  • 3% for the first 30 days, 0.1% per day thereafter
  • 2% per 20 days, 1% per 10 days thereafter


Many finance companies only handle transactions of a certain size. Furthermore, they work only with clients who need a minimum amount of yearly financing.

Minimums vary by company. Be sure to understand how they work for each provider you are considering, as they can affect your transaction costs.

Selecting a purchase order funding company

Many companies make the mistake of selecting their finance company based on the rate alone. While cost is critical, it’s not the only variable. To choose the best purchase order financing company for your business, focus on:

  • Their industry experience
  • The transaction flexibility
  • Their capital sources
  • Transaction costs
  • Transaction minimums

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