Purchase Order Funding: Bridge the Gap Between Winning the Contract and Getting Paid
A signed contract or a big wholesale order is good news — until labor, materials, and subcontractors all need to be paid before a net-30, 60, or 90 invoice ever clears.
Purchase order funding is financing used to cover the cost of fulfilling a contract, wholesale order, or purchase order, labor, materials, or subcontractor payments, while waiting on a customer's net-30, net-60, or net-90 invoice to be paid. The revenue is already won; the problem is timing. A Direct Fund Program can provide that upfront capital as general-purpose financing sized to a business's monthly revenue, repaid through fixed daily or weekly remittances over a term that can be set to roughly track a typical payment cycle — not as a specialized product that pays a supplier directly or pauses repayment until one specific invoice clears.
Why This Gap Exists
Winning the work is only the first half of the equation. The second half is covering the cost of doing it before payment arrives:
Labor and Payroll
A crew has to be paid every week regardless of when a government contract or wholesale client actually settles its net-60 or net-90 invoice. Contract funding covers payroll while the job is underway.
Materials and Supplies
Suppliers rarely wait as long as a customer's payment terms allow. Purchase order financing covers the materials needed to start or continue production before the finished order is invoiced.
Subcontractor Payments
Subcontractors typically expect payment on their own schedule, not on the general contractor's client's timeline. Subcontractor funding closes that gap so the job keeps moving.
What This Looks Like in Practice
The scenarios below are illustrative composite scenarios built from patterns commonly seen across industries. They are not records of any specific client, and every business's outcome depends on its own financials.
The Net-60 Government Contract
A facilities maintenance contractor won a government contract with net-60 payment terms, but needed to pay two subcontractors and cover materials starting the first week of the job. Government contract funding covered the upfront costs, and the contractor repaid it over the following months as ongoing revenue came in.
The Large Wholesale Order
A specialty food producer landed its largest wholesale order to date from a regional retail chain, but the retailer's standard net-30 terms meant payment wouldn't arrive until well after the ingredients and packaging had to be purchased. Wholesale order funding covered the production costs so the order could be fulfilled on time.
The Staffing Contract Ramp-Up
A staffing agency won a new corporate placement contract that required hiring and paying a larger team before the client's first net-45 invoice was due. Business contract funding covered payroll during the ramp-up period, and repayment continued on its normal schedule as the contract became an ongoing revenue source.
The Timeline Problem, at a Glance
Standard commercial and government payment terms can leave weeks or months between fulfilling a contract and getting paid for it. Here's how that compares to how quickly financing can arrive.
Typical Payment Terms vs. Funding Time
Payment terms are standard industry ranges and vary by customer and contract. Funding timeline reflects the Direct Fund Program's typical underwriting and disbursement speed.
Purchase Order Funding vs. Invoice Factoring
These terms often get used loosely, so it's worth being precise about how they typically work:
PO Financing / Factoring
- Often pays a supplier directly, or advances against one specific invoice
- Repayment tied to that individual invoice or order being collected
- Funding amount tied to the size of the specific PO or invoice
General Contract Funding
- Provides general-purpose capital the business directs toward contract costs
- Repaid via fixed daily or weekly remittance from overall revenue
- Term can be sized to roughly match a typical payment cycle
- Funding amount sized to overall monthly revenue, not one PO
What Purchase Order Funding Costs
Cost is expressed as a factor rate rather than an interest rate — a fixed multiplier applied to the amount funded, known before a business accepts an offer.
Factor Rate Range by Risk Profile
House fees of 5–10% may also apply. Because total cost is fixed at funding, the full repayment amount is known from day one.
Qualifying for Contract & Purchase Order Funding
A signed contract or purchase order isn't required to apply, but it can be useful context to share alongside recent bank statements — approval is based mainly on the business's overall revenue and cash flow, not the size of any single order.
What Purchase Order Funding Can Cover
Purchase Order & Contract Funding: Frequently Asked Questions
What is purchase order funding?
Purchase order funding is financing used to cover the costs of fulfilling a contract, wholesale order, or purchase order, labor, materials, or subcontractor payments, while waiting on a customer's net-30, net-60, or net-90 invoice to be paid. It bridges the gap between winning the work and actually receiving payment for it.
How is purchase order funding different from invoice factoring?
Traditional purchase order financing typically pays a supplier directly on a business's behalf, and invoice factoring involves selling a specific outstanding invoice to a third party at a discount, with repayment tied to that one invoice being collected. A Direct Fund Program works differently: it provides general-purpose financing that a business can use toward contract-related costs, repaid through fixed daily or weekly remittances from overall business revenue, with a term that can be sized to roughly match a typical payment cycle, rather than repayment that is paused specifically until one invoice clears.
How much purchase order funding can my business get?
Funding amounts through the Direct Fund Program range from $10,000 to $5 million, sized primarily to the business's monthly revenue rather than the size of a single contract. Businesses generally need at least $50,000 in monthly revenue to be considered, with the specific amount also shaped by time in business and existing financing positions.
What can purchase order funding be used for?
Common uses include payroll for labor on the job, materials and supplies, subcontractor payments, equipment rental, and mobilization costs needed to start or continue work on a contract before the customer's invoice is paid.
Do I need good credit to get purchase order funding?
Not necessarily. Approval is based primarily on business revenue and cash flow rather than personal credit history, and credit scores around 500 and up are typically considered. Eligibility checks use a soft credit pull, so checking doesn't affect a business's credit score.
How quickly can I get purchase order funding?
Through the Direct Fund Program, underwriting typically takes 1 to 5 hours, and funding is generally disbursed the same day or the next business day after approval. That speed matters when a contract has a mobilization deadline or subcontractors need to be paid to start work.
What are the requirements for purchase order funding?
Typical requirements include at least 1 year in business, at least $50,000 in monthly revenue, and a business bank account with regular deposit activity. There's no strict minimum credit score, and businesses in 1st through 5th-plus funding positions may still qualify. A signed contract or purchase order isn't a formal requirement, though it can be useful context to share.
What documents do I need to apply for purchase order funding?
Most applications require recent business bank statements (commonly 3–6 months), a completed application, and basic business identification such as an EIN and formation documents. Sharing the underlying contract or purchase order alongside the application can provide helpful context, even though it isn't a required document for approval.
How much does purchase order funding cost?
Through the Direct Fund Program, cost is expressed as a factor rate rather than an interest rate, a fixed multiplier on the amount funded, generally ranging from 1.25 to 1.49 for prime-qualified businesses and 1.359 to 1.499 for higher-risk profiles. House fees of 5 to 10 percent may also apply. The total repayment amount is fixed and known before a business accepts funding.
Is purchase order funding right for my business?
It tends to make sense when a business has a specific, already-won contract or order with a clear payment timeline, and the cost of covering labor, materials, or subcontractors upfront would otherwise strain cash flow. It's worth being cautious about relying on it for contracts with uncertain or open-ended payment timelines, since the funding itself is repaid on a fixed schedule regardless of when the customer's invoice is actually collected.
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