Purchase order financing vs factoring: one pays your supplier, the other pays you on the invoice.
Purchase order financing covers the time before delivery: it pays your supplier so you can fill an order from a creditworthy customer. Factoring covers the time after you invoice: it advances cash on the invoice while your customer takes 30 to 90 days to pay. They aren't rivals. At 1st Commercial Credit, the invoice the order produces is factored, and that pays back the PO funding.
Daniel Chirino · Business Development Officer, 1st Commercial Credit
Updated: October 29, 2026
Side by side
| Topic | Purchase order financing | Invoice factoring |
|---|---|---|
| When it helps | Before delivery: you have the order but can't pay for the goods. | After delivery: you have an invoice your customer hasn't paid yet. |
| Who gets the money | Your supplier, directly: the goods, the freight and the import duties. | You: an advance on each invoice, and the rest when your customer pays, minus the fee. |
| What gets reviewed | Your customer's credit, the order's terms and deadline, your supplier's track record and your margin. | Mainly your customers' credit and that each invoice is valid. |
| Minimums at 1st Commercial Credit | Orders of $100,000 or more as a rule, a margin of at least 25% built into the order and a factoring account there first. | From about $10,000 a month in sales. |
| How long to set up | 5 to 10 business days. | 3 to 5 days. |
| How it's paid back | With the factoring of the invoice the order produces. | Your customer pays the invoice. |
| How it's priced | From 1.5% to 5% per 30 days, depending on the deal's risk, the type of product and how long the order cycle takes. | A fee on each invoice that grows with the days your customer takes to pay. 1st Commercial Credit publishes rates from 0.69% to 1.59%, depending on your volume, how fast your customers pay and their credit, and says its average client pays about 2.25%, depending on how many days the invoices take to be paid. |
Sources: 1st Commercial Credit's purchase order financing page, its PO financing FAQ, its articles "How Does Purchase Order Financing Work?" and "The Myth of Stand-Alone Purchase Order Financing", its accounts receivable financing page and its invoice factoring page, read October 29, 2026. Terms are confirmed in writing before you sign.
How they work together, step by step
- Your customer sends you a purchase order.
- The deal gets reviewed: your customer's credit, the order and your margin.
- 1st Commercial Credit pays your supplier for the goods, the freight and the duties.
- You deliver and invoice your customer. That invoice is factored, and the advance pays off the PO funding.
- Your customer pays the full invoice to 1st Commercial Credit, which sends you the rest minus its fees.
That's why PO financing almost never stands alone. Most PO lenders don't finance or collect the invoice, so they need a separate factor to take them out, with an intercreditor agreement between the two. 1st Commercial Credit funds both with its own money: one lender and one agreement.
Which one do you need?
Purchase order financing, if
- You have an order from a creditworthy customer and can't pay the supplier upfront.
- The order leaves you a margin of 25% or more after goods, freight, duties and financing.
- You've been in business at least a year and have filled orders like this before.
- You already factor, or you're ready to: at 1st Commercial Credit, that comes first.
Factoring alone, if
- You already delivered and you're waiting 30 to 90 days to get paid.
- You sell services. PO financing pays suppliers for goods (for janitorial, staffing and security contracts, 1st Commercial Credit may fund job orders to cover payroll until the work is done).
- Your margin on the order is thin. PO financing asks for at least 25%.
- Your company is in California or New York, where its PO financing isn't offered.
Questions owners ask me
Can I get purchase order financing without factoring?
Not at 1st Commercial Credit: you need a factoring account first, because the factored invoice is what pays back the PO funding. Elsewhere, PO lenders usually require a separate factor and an intercreditor agreement.
Is PO financing a loan?
1st Commercial Credit treats both PO financing and factoring as transactional financing, not term loans. There are no monthly payments: the fees come out of what your customer pays.
How fast can my supplier get paid?
Setup takes 5 to 10 business days, and the supplier is paid right after approval and the paperwork. Many clients get a pre-approval within 24 to 48 hours of sending their documents.
Can it pay an overseas supplier?
Yes. It's used by U.S. importers to pay foreign suppliers, freight and import duties. See export and import financing.
Who placed the order?
Tell me who your customer is, what you're buying and from whom. I'll tell you if the order can be funded, or if factoring alone is enough.
Also read: purchase order financing · how invoice factoring works · all guides