Businesses that buy materials in bulk on a repetitive basis may benefit from purchase order financing if they have a predictable and relatively short sales cycle. 

 

A good example would be an online furniture retailer that buys merchandise by the container from a manufacturer.   This retailer starts to generate revenue from a merchandise purchase 45 days after receipt of the goods and by 90 days, he has sold the majority of the goods.

 

Let's assume that a retailer is offered a purchase order finance arrangement for a $100K container.  The finance company advances $100K to the vendor and expects to be repaid the full amount plus 4% interest 90 days later. 

 

Given that the business started generated revenue 45 days after the purchase, they should be in an excellent position to repay the finance company $104K at the 90-day mark.