Purchase order finance UK: how it works, costs and alternatives

A confirmed sale can still create a cash gap

Winning a larger order is good news until the supplier's payment date arrives before the customer's money. Your business may need to buy goods, pay for production or arrange freight before it can deliver and invoice. The order has commercial value, but it does not immediately pay the supplier.

Purchase order finance, often shortened to PO finance, is designed around that kind of transaction. The British Business Bank describes it as funding linked to purchase orders that helps businesses fulfil customer demand. It is different from borrowing against an invoice you have already issued for completed work.

Begin with a genuine, documented customer order. Check its conditions, cancellation rights, delivery requirements and payment terms. A forecast that a retailer might buy next month is useful planning information, but it is not the same thing as a confirmed purchase order.

Even a confirmed order is not a guarantee of cash. Product quality, delivery, acceptance and customer payment still matter. Funding the supplier does not remove those commercial responsibilities.

How does purchase order financing work for small businesses?

1. Document the customer order. Establish exactly what must be delivered, at what price, by which date and on which payment terms.
2. Confirm the supplier purchase. Obtain the quotation or invoice, production and delivery timetable, and any deposit or balance requirements.
3. Present the transaction for assessment. The provider reviews the parties and proposed deal. It may ask about order margin, performance risk and how payment will be collected.
4. Review the funding agreement. Confirm the amount funded, any contribution you must make, all charges, security and repayment or collection arrangements.
5. Fulfil the order and complete the payment cycle. Track delivery, acceptance and the customer receipt. Settle the finance according to the agreement.

The exact mechanics vary. Some arrangements pay the supplier directly or control how customer proceeds are received. Others may connect to invoice finance after delivery. Do not assume your customer will be unaware of the arrangement, that all purchase costs are covered or that the lender takes the loss if the customer does not pay.

Ask the provider to put the responsibilities in plain language: who pays whom, who contacts the customer, what happens after a dispute and which obligations remain with your business.

A £60,000 order: look at the pounds left over

Consider a hypothetical distributor with a £60,000 customer order. The goods cost £40,000 and freight and handling cost a further £3,000. Assume an invented total finance charge of £2,000 for the agreed transaction period.

The £15,000 is not net profit or cash immediately available to spend. It must still cover any other costs attributable to the order and contribute to overheads. The business also needs a separate forecast for the dates the money enters and leaves its bank account.

Now test a delay. If the actual agreement imposed an additional £500 charge for an extended period, the contribution would fall to £14,500 before other costs and tax. That extra charge is another invented assumption, not a market rate. A real contract might use a different basis or have no such extension option.

The useful lesson is to model the full order and a slower scenario before agreeing the finance. A high sales value can hide a thin margin once purchasing, delivery and funding costs are included.

What are the typical costs of purchase order financing?

There is no single percentage that usefully describes every PO finance offer. A percentage without its charging period and calculation base can be misleading. A charge on the funded amount is different from the same percentage on the full customer order; a monthly charge is different from a fee for the whole transaction.

Ask for a complete cash illustration for your actual order, including the expected completion date and a delayed-payment case. Then compare the offers on the same assumptions.

• The calculation base: funded supplier cost, order value, outstanding balance or another amount.
• The charging period: a fixed transaction fee, recurring charge, minimum period or part-period rounding.
• Other costs: setup, administration, transaction, transfer, currency-conversion or third-party charges, where applicable.
• Your cash contribution: deposits, unfunded costs and any reserve or retention.
• Delays and disputes: charges, repayment obligations and remedies if goods are late or the customer challenges the invoice.
• Early repayment: whether settling sooner changes the total charge and whether a minimum fee remains.
• Security: guarantees, assets or rights over proceeds required under the agreement.

The goal is a figure in pounds and a schedule you can put into the cash forecast. Compare cost with the transaction's expected contribution, while keeping enough room for operating expenses and uncertainty.

Which funding route matches the stage you are at?

Hello introduces eligible businesses for supplier payment finance, with potential terms of up to 12 months. It is not a promise that a specialist PO finance structure will be available. If the problem is an approved vendor invoice, the supplier-payment route may be relevant even where the wider purchase is connected to a customer order.

Read the supplier finance versus invoice finance comparison for the distinction between outgoing bills and incoming receivables. For overseas goods, our import finance guide covers deposits, shipment and currencies.

What are the benefits for suppliers?

A supplier can benefit when an approved funding arrangement enables its customer to meet the agreed payment terms. That may allow production or dispatch to proceed and reduce pressure to extend additional trade credit. The actual payment date and amount still need to be confirmed.

The benefit to your business is the ability to consider an order without funding every supplier cost immediately from its own cash. The trade-off is the finance cost and the obligations in the agreement. Neither party should assume that arranging finance guarantees delivery, eliminates disputes or transfers every risk to the lender.

Before relying on funding, align the supplier's terms, the customer's requirements and the proposed repayment arrangement. A simple written timeline often reveals a gap that a headline rate does not.

Start with the order, invoice and payment dates

Have the customer order, supplier quotation, due dates and estimated full transaction costs ready for the later assessment. For an overseas supplier, include the invoice currency and intended destination; payments in most currencies can be considered subject to the provider's checks.

Hello's introduction route is designed for established UK limited companies and LLPs with at least £1 million annual revenue. Funding of up to £1 million and repayment terms of up to 12 months are subject to the provider's assessment. Hello charges £0 for the introduction; the finance carries the agreed provider charges.

Enquire about supplier funding to explore the fit. The initial form needs your contact and company details, so you can begin without uploading the order or financial statements there.

Questions, answered.