What is purchase order finance and how does it work in the UK?
PO finance pays your supplier directly against a confirmed customer purchase order, before you've delivered or invoiced. Lender funds 70-100% of supplier costs, you produce/deliver the goods, customer pays the invoice, lender takes principal plus 2-5% fee. Used by importers, manufacturers and distributors. UK specialists: Optimum Finance, Nucleus Commercial Finance, Time Finance, Stenn (export only). Often combined with invoice finance to fund the entire order-to-cash cycle.
What this means for your business
Purchase order finance lets a UK business fulfil a large customer order without tying up its own cash. Rather than waiting until goods are delivered and invoiced, the lender pays your supplier directly, based on a confirmed purchase order from your customer. This covers the cost of raw materials, stock or manufacturing before you have anything to invoice against.
Typically the lender funds 70 to 100 percent of supplier costs. Once you deliver the goods and raise your invoice, the customer pays, and the lender deducts the amount advanced plus a fee, usually 2 to 5 percent, before passing you the balance. It suits importers, manufacturers and distributors who win orders bigger than their working capital allows, letting them take on growth without turning business away for lack of funds.
Key points
- The lender pays your supplier directly, not you, so funds never sit in your own account before delivery.
- Funding typically covers 70 to 100 percent of supplier costs, leaving you to fund any shortfall.
- Fees of 2 to 5 percent are deducted once the customer pays the invoice, so the total cost depends on how quickly the order completes.
- It is commonly paired with invoice finance so the whole order to cash cycle, from raw materials to customer payment, is funded end to end.
- It works best for businesses with confirmed, credible purchase orders from established customers, rather than speculative stock building.
Common pitfalls
The most common mistake is assuming purchase order finance alone covers everything, when in practice it only funds the supplier side. Businesses still need a plan for the gap between delivery and customer payment, which is usually where invoice finance steps in.
Margins matter too, since the lender's fee is taken from the deal, thin-margin orders can leave little profit once costs are deducted. Lenders will also scrutinise the end customer's creditworthiness and the reliability of the supplier, not just your own business, so weak links on either side can see an application declined or reduced.
Related questions
Can a start-up use purchase order finance?
It is possible, but UK lenders focus heavily on the strength of the customer purchase order and supplier relationship rather than your trading history, so a start-up with a credible order can qualify. Approval depends more on the deal itself than the age of the business.
Is purchase order finance the same as invoice finance?
No, they cover different stages of the cycle. Purchase order finance pays your supplier before delivery, while invoice finance advances cash against the invoice after delivery, and the two are often used together.
What happens if the customer does not pay the invoice?
You remain responsible for repaying the lender's advance and fee, since purchase order finance is not the same as credit insurance. Some providers offer this alongside credit protection, but it is worth checking terms before relying on it.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
Last reviewed: 4 August 2026