Invoice funding and purchase order funding both solve cash flow problems, but they work at different stages of the business cycle.
By understanding the timing disparity, businesses can more easily choose the right financing solution for their specific situation.
What is invoice funding?
Invoice funding is a short-term cash advance against unpaid invoices. It allows businesses to operate as usual, while awaiting payments from clients.
Lengthy payment cycles can affect a company’s growth potential and access to future credit.
By leveraging existing assets in the form of outstanding invoices, your business can maintain the steady cash flow required to cover operational expenses, strengthen relationships and support growth initiatives.
What is purchase order funding?
Purchase order funding unlocks the capital a business needs to fulfil a large government or corporate order.
It makes it possible to pay suppliers for the materials or stock needed to do this, without requiring cash reserves upfront.
This empowers businesses to accept lucrative orders – including bigger orders than they’ve previously fulfilled. Then they can repay the funds only after they’ve completed orders and received payment themselves.
The key difference: timing in the business cycle
Invoice funding is retrospective. It is capital provided after the delivery of products or services and issuance of invoices.
In this scenario, the funds are “secured” by accounts receivable, or the money still owing to the business as reflected in the unpaid invoices.
PO funding is provided “pre-revenue”. Beforethe delivery of goods or services, invoices are issued and the business is paid by the end user. It unlocks the capital required to enable the successful fulfilment of an order.
When invoice funding is the right choice
Invoice funding is the answer when you’ve completed the work, or delivered the goods or services, and are awaiting payment.
It ensures the business keeps ticking over, day-to-day operational costs are covered and there’s financial leeway to seize opportunities when they present themselves.
It’s the choice for companies that have the capacity to fulfil orders but need faster access to earned revenue. It helps fuel rapid growth without taking on additional debt or using business assets as collateral.
When purchase order funding is the right choice
When you’ve secured an order but lack capital to purchase stock, pay suppliers or cover fulfilment costs, purchase order funding bridges the cash flow gap.
It’s great for enabling quick access to funds, scaling up the business to take on larger orders, and when the order value exceeds your current working capital.
Can you use both types of funding?
Businesses often use both types of funding, either simultaneously on different projects, or at different stages of the sales cycle.
Together, they can be used to secure large orders, maintain business operations and sustain growth.
Purchase order funding can be leveraged to acquire equipment and materials, and cover the projected costs of an order.
Once the order is fulfilled and invoices sent out, invoice funding can be used to pay the bidding costs of new tenders or for advertising or marketing campaigns targeting potential new clients.
Which funding options offers better terms?
Neither option offers better terms, but the post-sales nature of invoice funding means it carries lower risk. Fees are typically lower too, and charged at a percentage of the total value of the invoice.
Purchase order funding is used pre-revenue. The risk profile is higher, as are the fees charged as a percentage of the supplier’s cost.
How to assess the funding solution your business needs
Your choice of funding depends on your business’ primary need. If it’s about getting a project done, PO funding is required.
If you’ve completed a project or delivered the goods, and your business needs a cash injection to remain competitive, invoice funding fits the bill.
How BizFunding supports your growth
BizFunding offers fast, flexible funding solutions to businesses in South Africa. Available options include PO funding and invoice funding.
Our online application and approvals process is quick and straightforward. Limited paperwork is required, and we partner with you to ensure projects are completed on time and within budget.
Get funding of up to R2 million now for your business. Call 010 157 2499 for more information.
