Working Capital vs Purchase-Order Funding: Which Fits Your Business?

A growing business often needs funding for one of two very different reasons: to keep day-to-day operations running smoothly, or to fulfil a specific order it has already won. Working-capital funding and purchase-order funding each solve one of those problems, and choosing the right one starts with naming which problem you actually have.

Working-capital funding

Working capital is the money a business needs to cover its ordinary running costs — stock, salaries, rent and the gap between paying suppliers and being paid by customers. Working-capital funding smooths that gap so operations do not stall while you wait for invoices to settle.

• best for: recurring cash-flow gaps and seasonal dips
• repaid from: general business revenue over an agreed term
• assessed on: your cash flow, trading history and overall financial position

Purchase-order funding

Purchase-order funding is tied to a single confirmed order. When a customer places an order your business cannot fully finance up front, this funding advances money against that order so you can pay suppliers and deliver the work. It is repaid once the customer settles the resulting invoice.

• best for: a confirmed order you could not otherwise fulfil
• repaid from: the payment for that specific order
• assessed on: the order, the customer's reliability and your ability to deliver

How to choose

Start with the problem, then look at repayment. Working capital is repaid from general revenue, so it suits ongoing needs; purchase-order funding is repaid from one deal, so it suits one-off opportunities. The right structure also depends on your margins and the timeline between delivering and being paid.

• name the problem — ongoing cash flow, or a single confirmed order
• check your margin covers the cost of the funding and still leaves a profit
• map the timeline between paying suppliers and receiving payment
• have your registration, recent financials and contract details ready