Purchase Order Financing Calculator

How to calculate PO financing costs?

Lenders typically charge fees based on the total amount funded and the total length of time the capital is deployed. Unlike traditional loans, these costs are tied directly to the lifecycle of the specific purchase order being financed.

Total Cost = (Funded Amount × (Annual Rate / 360) × Days) + Fees

Using the PO Financing calculator: an example

Consider a scenario with an order value of $50,000 where the lender provides 80% funding for the production of goods.

Step-by-step calculation:

1. Determine funded amount: $50,000 × 80% = $40,000
2. Calculate daily interest (assuming 15% APR): ($40,000 × 0.15) / 360 = $16.67 per day
3. Multiply by 60 days duration: $16.67 × 60 = $1,000
4. Add $500 setup fee for a total of $1,500

This example demonstrates how the duration of the funding directly impacts the overall expense of the transaction.

Frequently Asked Questions

• What is the difference between PO financing and factoring? Purchase order financing provides capital to manufacture or acquire goods before delivery, whereas factoring provides immediate cash for invoices already issued after delivery.
• What is the typical duration? Most PO financing arrangements are short-term, typically lasting between 30 and 90 days, matching the production and payment cycle.
• Who is eligible? B2B companies, wholesalers, and distributors with solid, non-cancelable purchase orders from creditworthy customers are generally the best candidates.