Documents Required for Purchase Order Financing: A Checklist

A purchase order that has been confirmed can be a significant business opportunity, but for a business to be able to fulfil an order, it may need funds to pay prior to the consumer paying. Purchase order financing can help to fill this funding gap by financing eligible orders, usually by financing the supplier or fulfilment costs. However, approval depends on more than the purchase order itself. The financiers may check the buyer, supplier, business, transaction, and financial position before deciding whether to fund the order. With appropriate purchase order financing documents ready, this evaluation can be easier and will help to minimize the back-and-forth that may arise during the application process.

What is Purchase Order Financing?

Purchase order financing is a short-term funding method that gives businesses working capital to cover the resulting requests or customer orders without waiting for payment from the customer. 

Read: PO Financing Meaning, Working, and Benefits

Documents Required for Purchase Order Financing

There are four main categories of documents needed for purchase order financing:  the customer order, supplier and fulfilment information, business records, and financial documentation. Note that every application will need all of these documents, but the following are helpful in the preparation of a financing package.

1. Confirmed Purchase Order

The core of a PO financing application is the customer purchase order. It establishes that the buyer has placed an order and provides the commercial information necessary to evaluate the transaction.

The PO should clearly demonstrate:

• Buyer and seller legal names
• Products or goods ordered
• Quantity and pricing
• Total order value
• Delivery requirements
• Payment terms
• Order date and validity
• Authorized confirmation or signatures (if applicable)

A clear and definite order is of special importance in the context of PO financing, as it is associated with a definite customer order.

2. Supplier Quotations and Invoices

The financier might also require documentation of the order’s cost for the business. Costs for procurement and funding requirements can be determined based on supplier quotations, pro forma invoices, purchase invoices or supplier agreements.

These documents can be helpful to match up the customer’s order with the underlying supplier transaction. They can also assist the financier in comprehending the expected margin and in deciding if the proposed funding will be commercially viable.

3. Business and KYC Documents

Business documents are used to create a legal presence and operational status of an applicant. 

Common PO financing documents can contain:

• PAN Card
• GST Registration Certificate
• Certificate of Incorporation or business registration
• Business address proof
• KYC documents of promoters or authorised representatives
• Udyam Registration Certificate, where applicable
• Relevant licences or registrations

The exact requirements depend on the business structure and the financier’s internal verification process.

4.  Financial Statements and Bank Records

Financial information enables the financier to evaluate the business’ capacity to carry out the order and to handle the related cash flow cycle. Eligibility for purchase order financing can be determined via some of the following methods:

• Balance Sheet
• Profit and Loss Statement
• Cash Flow Statement
• Recent bank statements
• GST returns
• Income Tax Returns
• Existing borrowing or repayment information, where required

The period requested can vary. Some providers might require a few months of bank statements and may require a number of years of financial statements, especially for established businesses.

The checklist is not intended to be a standard requirement, but rather a guide for preparation. The documentation may vary depending on the financier, order structure, industry, buyer, credit evaluation and size of the financing.

Also read: Step-by-Step Guide on How to to Apply for Purchase Order Financing

Buyer and Order Details Can Affect Approval

Purchase order financing documentation is not confined to the documentation of the applicant. Additionally, the credibility of the buyer, along with the commercial relationship, can be part of the assessment.

A financial investor may ask for:

• Buyer contact and business details
• Previous transaction history with the buyer
• Existing contracts or agreements
• Details of previous orders
• Buyer payment history or credit information, where required

This information can help to prove the order is legitimate and that there is a viable trace of the order to the point of fulfilment to the buyer. The financial institutions that provide PO financing typically evaluate the actual purchase order in conjunction with the supplier’s financials and track record of supplying.

What Can Delay a PO Financing Application?

Incomplete or inconsistent records can make purchase order financing verification more difficult. These include inconsistencies between the PO and supplier quotation, lack of business information, discrepancies in KYC information, lack of financial records or unclear terms and conditions.

Businesses should also verify that names, order value, product description and dates are consistent throughout documents. Complete submission provides the financier with greater transparency of the transaction and can limit unnecessary follow-up questions for further information.

Turning Confirmed Orders Into Working Capital With Credlix

Purchase order financing can be useful for businesses that have orders, but only have limited funds to put towards fulfilment. Credlix offers PO financing with up to 40% of the POs value for eligible PO transactions. The facility is designed to provide working capital before shipment and can be structured around the business’s financing requirement and order cycle.

When applying for PO funding, it is useful for businesses to have the purchase order ready, supplier info, business KYC, financial statements and the buyer’s info beforehand for a smoother application process.

Preparing for Purchase Order Financing

Right documentation is more than just an application requirement. It assists in creating links between customer order, supplier cost, business capacity and expected payment period. Having these records up to date can help you better determine whether funding is needed and act immediately when a huge order arises that requires a working capital deficit. Document verification can be simplified with clear and consistent records. This allows companies to quickly adjust to meet the working capital needs of a confirmed order. 

FAQs

What documents are required for purchase order financing?

Common purchase order financing documents consist of a confirmed customer purchase order, supplier quotation or invoice, company registration and KYC documents, bank statements, financial statements and relevant GST or tax documents. Based on the order and credit evaluation, the financier may also ask for buyer information, contracts, transaction history or other documents.

Is a purchase order enough to get PO financing?

A confirmed purchase order is central to the application, but it is generally not the only document required. The financier might also examine the applicant’s business records, financial situation, supplier expenses, buyer trustworthiness, and order fulfilment capabilities. Additional documentation can therefore be requested before financing is approved.

Can startups apply for purchase order financing?

Some providers offer purchase order financing for startups, but eligibility varies significantly. Approval may be influenced by factors including business vintage, quality of the buyers, order structure, financial records, credit history and transaction economics. Companies should research the individual’s requirements before applying and provide the necessary documentation to document the transaction.