If a company has a signed purchase order from a creditworthy customer and the gross profit margin on the order is anticipated to be 36 percent, purchase-order financing is likely.

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Purchase-order financing is a form of short-term financing that allows a company to borrow money to pay suppliers to fulfill a customer's purchase order. It is commonly used when companies do not have the funds necessary to fulfill a large order from a creditworthy customer. In this scenario, the fact that the customer is creditworthy gives the lender confidence that the invoice will be paid, and the anticipated 36 percent gross profit margin provides an attractive return on investment for the lender.

If a Company Has a Signed Purchase Order from a Creditworthy