Purchase order finance addresses the cost of fulfilling a customer order before delivery. Invoice finance uses eligible unpaid invoices after goods or services have been supplied. The useful starting point is therefore the date your business needs cash, rather than the size of the eventual sale. The British Business Bank explains this distinction in its purchase order financing guide.
Compare the stage of the transaction
| Question | Purchase order finance | Invoice finance |
|---|---|---|
| What stage is being considered? | Fulfilling a confirmed customer order before delivery. | Waiting for payment on an eligible invoice. |
| What should your explanation show? | The customer order, supplier costs, delivery timetable and cash needed to fulfil it. | The invoice, what has been supplied, payment terms and expected receipt date. |
| What must the written offer clarify? | Which costs are funded, how suppliers are paid and how sale proceeds repay the facility. | Which invoices are accepted, the advance, deductions and release of any retained balance. |
These are questions for comparing written terms, not a statement that a particular order or invoice will qualify. Bene’s purchase order finance guide covers the order stage in more detail.
A profitable order can still create an early cash gap
Consider this invented example. A business has a £100,000 order, £60,000 of supplier costs and £5,000 of delivery costs. It can allocate £20,000 of existing cash to the transaction.
| Date | Commercial event | Cash movement before finance |
|---|---|---|
| Day 1 | Supplier payment falls due | £60,000 out |
| Day 25 | Delivery costs fall due | £5,000 out |
| Day 30 | Delivery is completed and the £100,000 invoice is issued | No customer cash received |
| Day 90 | Customer pays, assuming the agreed timetable holds | £100,000 in |
The initial shortfall is £40,000: the £60,000 supplier payment less £20,000 available cash. Before delivery, it rises to £45,000 when delivery costs are included. Issuing an invoice on day 30 does not put cash in the bank on day 1.
The £35,000 difference between the sale and the two listed costs is also not net profit. This simplified example excludes overheads, VAT, tax, finance charges, returns and other costs. Add those items to your own forecast, alongside a separate contingency.
Repeat the timetable with delivery postponed and customer payment delayed. Show the cash needed at each date. Our guide to calculating a business funding requirement explains how to build a broader budget around the transaction.
An invoice advance changes the later part of the timetable
Invoice finance can release part of the value of qualifying unpaid invoices, with the balance and charges handled under the facility. The British Business Bank’s invoice finance explanation describes the advance and retained balance.
Bene’s invoice finance guide sets out the wider structure and preparation questions.
For the example above, ask what must happen before the invoice becomes eligible and when funds could actually reach the business. Do not put an assumed advance into the forecast before the relevant provider has confirmed its conditions.
If only an occasional customer account or invoice needs consideration, read about selective invoice finance. If the gap repeats each month, compare the whole pattern of receipts and payments rather than treating every invoice as a separate problem.
Check the handover if more than one facility is involved
If a proposal involves purchase order funding followed by invoice funding, request one joined-up schedule. Ask who receives the customer payment, which facility must be repaid first, what approvals are required and how much cash remains available to your business.
Avoid counting the same expected receipt twice. A customer payment allocated to clear one balance cannot also be treated as unrestricted cash for another payment. Put any proposed transfer between facilities in the forecast as a separate, conditional step.
Customer communication matters too. Use our factoring and invoice discounting comparison when preparing questions about collection responsibilities.
Bring the costs back to the same dates
Ask for the net cash available on each funding date and total charges under both the expected and delayed timetable. Include setup costs, minimum charges, unused-facility commitments, termination costs and any amounts your business must contribute itself.
The British Business Bank’s invoice finance checklist highlights records, costs, collections and the agreement term as preparation points. A small headline percentage alone does not answer those questions.
If you are buying stock before securing specific customer orders, explain that clearly. Read the trade and stock finance guide before describing the requirement as purchase order finance.
Bene Finance acts as an introducer. This guide is general information, not a recommendation or confirmation that finance is available. Eligibility, security, charges and terms depend on the relevant provider and written agreement.
Primary sources
Sources reviewed for this guide
- Purchase order financing guideBritish Business Bank
- Invoice financeBritish Business Bank
- Invoice finance checklistBritish Business Bank
External sources provide general context and do not endorse Bene Finance or establish that a funding option is available.
This guide provides general information only and is not financial advice or a guarantee that finance will be available.