How to Apply for Purchase Order Funding in South Africa: A Step-by-Step Guide

If you’re ready to boost your SME’s cash flow and take on bigger deals, here’s a simple step-by-step guide to applying for purchase order funding in South Africa. The application process is generally straightforward and designed for speed. By following these steps, you can go from purchase order in hand to having the funds you need:

Step 1: Secure a Valid Purchase Order. Before seeking PO funding, make sure you have a bona fide purchase order from a reliable customer. Lenders will only fund confirmed orders from credible entities. Double-check that the PO document includes details like the product/service, quantity, delivery dates, and payment terms. Having everything clearly documented will smooth out the rest of the process.

Step 2: Calculate Your Costs and Profit. Determine how much money you need to fulfill this order. Get quotes from your suppliers for the required goods or materials. This will tell you the cost of fulfilment. Compare that to the price your customer will pay (the PO value) to ensure the deal is profitable for you even after financing fees. PO funders often look at profit margin to ensure the transaction makes financial sense for all parties. Knowing your numbers will also help you decide how much funding to request.

Step 3: Choose a Reputable PO Funding Provider. Research and select a lender or financier that offers purchase order funding (also known as tender funding or supply chain finance). In South Africa, there are specialized finance companies that do this, as well as some banks or alternative lenders. Look for providers that understand your industry if possible, and check their terms (fees, advance percentage, etc.). Many providers have online applications, which makes things easier.

Step 4: Submit Your Application (with Documentation). Apply for financing by providing key details about the deal. You’ll typically need to share: the purchase order itself (a copy of the PO document), information about your customer (who will ultimately pay the invoice), information about your supplier (who needs to be paid), and your cost estimates. The lender might ask for supporting documents like your company registration, ID of directors, or a brief trading history, but the focus will be on the purchase order and associated costs. Tip: Be transparent and accurate in all details – it speeds up approval.

Step 5: Lender Evaluation and Approval. Once they have your application, the PO funder will evaluate the deal. They’ll verify the purchase order’s authenticity and may perform checks on your customer’s creditworthiness (since the customer’s payment is how they get repaid). They might also verify your chosen supplier can deliver the goods. This due diligence protects all parties. If everything checks out, the lender will approve your application. You’ll receive a funding offer outlining the terms – for example, they might finance 100% of supplier costs or a percentage of the PO, and detail their fees or profit share.

Step 6: Accept the Offer and Get Funding. Review the terms of the offer. If it looks good, you’ll sign an agreement with the lender. After signing, the PO funding company provides the funds as agreed – typically they will pay your supplier directly. In some cases, the funds might come to you with conditions to pay the supplier, but often the financier handles paying suppliers to ensure the money is used for the order. The timing here is quick; many providers disburse funds very rapidly after approval (sometimes within 24-48 hours, depending on urgency).

Step 7: Fulfill the Order. With your supplier paid, you can now deliver on your customer’s order. Coordinate with the supplier to ensure goods are delivered on schedule to your customer. Throughout this process, maintain good communication with both your customer and the lender. The lender may require updates or confirmation that delivery has happened, especially if payment from the customer is dependent on delivery.

Step 8: Invoice the Customer and Ensure Payment Proceeds to Lender. Once you’ve fulfilled the order, send the invoice to your customer as normal. In many PO funding arrangements, the customer’s payment will be routed directly to the lender (for example, sometimes you instruct the customer to pay into an account managed by the funder or add the funder as a beneficiary). In other cases, the customer pays you and you are obligated to forward payment to the lender. Work out with the funder how the payment flow will occur. The key is that when the customer pays for the order, those funds go toward settling the PO finance.

Step 9: Lender Deducts Fees and You Receive the Remainder. After the customer’s invoice is paid, the lender will deduct the amount they advanced, plus their fees or interest as per your agreement. You receive the remaining balance, which is your profit on the order. For example, if the customer paid R500,000, and the lender advanced R400,000 to your supplier with a fee of R20,000, they will take R420,000 and give you R80,000 (minus any small admin fees if applicable). A good PO funder will be transparent about their charges from the start, so there are no surprises at this stage.

Step 10: Complete the Transaction and Reflect. Now that the deal is done and everyone is paid, you can close out the transaction. It’s wise to evaluate how it went: Was the funding process smooth? How did it help your business? This reflection can help you decide when to use purchase order funding again in the future as your business grows. You should also maintain a relationship with the PO funding provider – having a established partnership can make future deals even faster to fund, since they’re already familiar with your business.

Applying for PO funding might seem intimidating if you’ve never done it, but as you can see, it’s quite a streamlined process designed for busy entrepreneurs. Many lenders advertise quick applications (some online portals let you apply in minutes). They know you don’t have time for complex loan bureaucracy when a big order is on the line. By following these steps and preparing your documents, you can secure purchase order financing efficiently. This way, you focus on delivering quality to your customer, while the financier takes care of the cash flow gap. It’s a win-win that enables your SME to grow and take on opportunities confidently.