Trade and purchase order finance: paying suppliers before customers pay you

A wholesaler lands a large order. The goods have to be bought, shipped, cleared and delivered before the customer pays a cent. The order is real, the buyer is solid, and the cash isn’t there. This is the gap that trade finance and purchase order finance were built for.

What are trade finance and purchase order finance?

Both fund the front end of a deal: the cost of getting goods from your supplier to your customer. The funder pays the supplier, or pays you to pay the supplier, and is repaid when the customer pays.

• Trade finance commonly covers imports, exports and the movement of goods, sometimes across borders.
• Purchase order finance covers the cost of fulfilling a specific, confirmed customer order, domestically or internationally.

In practice, funders blend the labels, so the better way to approach it is to describe your deal: what you’re buying, from whom, for which customer, on what terms.

What do funders look at?

The funder is underwriting a deal, so the checklist is deal-shaped:

• The buyer. Who your customer is and how reliably they pay.
• The order. Firmness (a confirmed purchase order or signed contract), size, delivery dates and payment terms.
• The supplier. Whether it’s established and able to deliver what you’re ordering.
• Your margin. The gap between the cost to buy and the price you’ll receive. Thin margins leave little room for fees.
• Your track record. Evidence you’ve delivered similar orders.
• The logistics. Shipping, customs, storage, insurance, and who holds the goods at each stage.

How does the money flow?

Stage	What happens	Who is exposed
Order confirmed	You hold a purchase order from your customer	Customer
Supplier paid	The funder pays the supplier, or advances to you	Funder
Goods delivered	You deliver and invoice	You and the funder
Invoice funded (optional)	Moves into invoice-backed funding	Funder
Customer pays	Funder is repaid, you receive the balance	All

Illustrative example only. An importer of kitchen fittings receives a confirmed order from a national fit-out company. The supplier wants payment before shipment, and the customer pays 45 days after delivery. A funder pays the supplier, the goods arrive, the invoice is raised, and the customer’s payment clears the facility.

What do you need to hand over?

1. The confirmed purchase order or contract.
2. A supplier quote or pro forma invoice.
3. A costing sheet showing landed cost and margin.
4. Shipping and delivery details, and how goods will be insured.
5. Your usual business details, ID and bank statements.

If your deal is ready, describe the order to us and a specialist will say whether this route or a simpler one fits.

What are the trade-offs?

Priced for deal risk. Funders take delivery and payment risk, which makes this route dearer than plain invoice funding.

One deal at a time. Every order is assessed separately, so it isn’t a standing facility.

Dependence on the buyer. If the customer disputes the goods or pays late, the funder waits, and so do you.

Cooperation needed. The funder may need customer payments paid to a controlled account, which the buyer must accept.

Margin must be real. Costs, fees and exchange movements can erase a thin margin quickly.

Is there government-backed help for exporters?

Export Finance Australia, the federal government’s export credit agency, publishes small business loans and guarantees for eligible exporters, including a loan aimed at improving cash flow to fulfil export contracts and purchase orders. It carries its own eligibility conditions, such as trading history and turnover, and runs credit checks only with the applicant’s permission. For some exporters it is worth reading before any private route. The funding we help with is a separate path, and the two are not mutually exclusive.

What should you check about your supplier first?

Funders look hard at the supplier because the whole deal depends on goods arriving as promised. They want to know how long you have dealt with them, whether they have delivered on time before, and what happens if the goods are late or defective. If you are buying overseas, add shipping, customs, currency and insurance to the list. A cheaper supplier who cannot deliver is the most expensive supplier you can have, and a funder will notice.

Where possible, use suppliers you have a history with, and keep records of past deliveries. They are evidence that the chain works.

How do you know the margin is wide enough?

Do the sum before you apply. Take the price you will receive and subtract the landed cost of the goods, the funder’s charges, freight, insurance and any costs of getting paid. What remains is your real margin. If it looks thin, small delays or a currency swing could erase it, and a funder who sees the same thing may decline the deal or ask you to reconsider. A wide margin makes the case stronger and your risk smaller, so be realistic when you cost the order.

When is this the wrong tool?

• For general working capital with no specific order, try a line of credit.
• For buying equipment, try asset finance.
• If your supplier will give you terms, supplier credit costs nothing extra.
• If the order is not yet firm, wait. A funder can’t lend against a maybe.

Is trade or purchase order finance right for your deal?

If the buyer is strong and the order is confirmed, there’s a fair chance. The enquiry is a minute long, with no credit check, and your details aren’t sprayed around a group of lenders. A real person reads it and calls you. Describe the deal as precisely as you can, particularly costs, margin and payment terms, so we match you properly the first time. See if you qualify.