Invoice factoring and purchase order financing (also sometimes referred to as supplier financing, purchase order funding, trade financing, or accounts payable financing) are often confused with one another. However, there are some very significant differences:
Timing: You use invoice factoring after you have submitted an invoice to your customer for goods and/or services already provided, while purchase order financing is used prior to delivering finished goods to your customer. Essentially, factoring is used for accounts receivables, and PO financing is used to cover the supplier costs for an orders that has not yet been filled.
Uses: Invoice factoring can be used by companies that provide goods and/or services, whereas purchase order financing is available only to those companies that provide physical goods.
Release of Funds: With invoice factoring, funds are given directly to you, the business owner. With PO financing, funds are dispersed directly to your suppliers to provide materials and produce the goods.