What is supplier financing and how does it work?

Supplier financing – also known as purchase order finance – lets a business pay its supplier upfront before the goods arrive or the customer pays, using a third-party facility. The provider pays the supplier invoice directly, and the business repays once the goods have been sold and the customer has settled. It's designed specifically for the gap between supplier payment and customer payment that product businesses face on every order cycle.

How much does supplier financing cost?

Costs vary by provider and business profile, but a typical structure is a flat monthly fee applied to the financed invoice value. At 1.5% per month over a 90-day cycle, the total cost is 4.5% of the invoice – so £900 on a £20,000 order. Unlike a working capital loan with arrangement fees and non-utilization charges, most supplier financing and purchase order finance facilities only charge when you actually use them.

Is supplier financing cheaper than a working capital loan?

Not always in absolute terms – a bank working capital loan may carry a lower annualized rate. But the comparison is rarely straightforward. Bank facilities require collateral, take time to approve, and often have conservative limits for growing brands. Supplier financing is faster, more flexible, and scales with order volume. For businesses that can't easily access a working capital loan, or need capital that moves as quickly as their orders do, it's often the more practical option.

How does supplier financing compare to invoice factoring?

They solve different problems. Invoice factoring advances cash against invoices you've already issued to customers – it helps you get paid faster on work already done. Supplier financing and purchase order finance advance cash against supplier invoices you need to pay – they help you fund the order in the first place. If your constraint is on the buy side (paying suppliers), supplier financing is the right tool. If it's on the sell side (waiting for customers to pay), invoice factoring or invoice discounting is more relevant.

What are typical invoice factoring fees vs supplier financing fees?

Invoice factoring fees typically range from 0.5–5% of the invoice value, plus service charges and sometimes a monthly minimum. Supplier financing – like most purchase order finance facilities – is usually structured as a flat monthly fee, often 1–2% per month, applied only for the duration you use it with no hidden charges. Both are short-term facilities, so comparing them to annual loan rates gives a misleading picture of their true cost.

When does supplier financing not make sense?

If your gross margins are below 15%, the financing cost starts to take a disproportionate share of what the order generates. If your cash conversion cycle consistently runs beyond 120 days, the cumulative fee can become significant. And if the business is losing money at the order level, supplier financing or purchase order finance won't fix that – it just delays the problem. Both work best as growth tools for businesses with healthy margins and a clear view of their order cycle.

Supplier financing cost: what you're actually paying per order

Published: 04/07/2026
Last updated: 04/07/2026

The number that stops most founders in their tracks is the monthly fee. They hear 1.5% per month, do a quick mental calculation – "that's 18% a year!" – and assume the conversation is over.

It's an understandable reaction, but it's the wrong calculation for the wrong question. And making that mistake can cost you more than the financing itself ever would.

Supplier financing – sometimes called purchase order finance or trade finance – doesn't work like a mortgage or a business overdraft. The cost structure is different, the time horizon is different, and the right way to evaluate it is different. And the pressure behind the question is real: net working capital days in the UK has risen almost 50% since 2015 – the sharpest increase of any major market, according to PwC's Working Capital Study 25/26. Product businesses aren't imagining the squeeze. The gap between paying out and getting paid back has genuinely widened. This article covers how to think about the real cost: what to compare it to, what the actual question is, and when it genuinely doesn't make sense.

💡 Key takeaways

APR is a useful metric for long-term borrowing – it's misleading for short-term supplier financing and trade finance
The right question isn't "what's the annual rate?" – it's "what does this cost per order cycle, and what does it unlock?"
The real cost of not financing – declined orders, missed supplier discounts, slower growth – is often higher than the financing fee itself
Supplier financing and purchase order finance make the most sense when the return on deployed capital exceeds the cost of accessing it
It's not the right tool for every situation – but for fast-growing product businesses, it usually costs less than the alternative

Why APR is the wrong lens for supplier financing

When you borrow money for 25 years to buy a property, APR is the right lens. You're committing to a long relationship with that capital, and small differences in annual rate compound into very large differences over time.

Supplier financing doesn't work like that. You're not borrowing for a year. You're bridging a specific, time-limited gap: the window between paying your supplier and getting paid by your customer. That window might be 60 days. It might be 90. When the goods are sold and the invoice is settled, the facility closes – and so does the cost.

This is true whether you're using a dedicated purchase order finance facility or a supplier financing platform like Treyd. The underlying mechanic is the same: short-term capital deployed for a specific order cycle, not a long-term debt relationship.

Expressing that as an annualized rate is a bit like pricing a two-week rental car by projecting the daily rate out over 52 weeks. Technically accurate. Practically misleading.

The relevant question isn't "what would this cost if I used it every day for a year?" It's "what does this cost for the order cycle I'm actually running?"

How to calculate the real cost per order cycle

For supplier financing and purchase order finance, the number that matters is cost per order cycle – and whether the margin you generate on that cycle justifies it.

What does this order cost to finance? A flat fee – say 1.5% per month on the financed amount – applied to a 90-day (three-month) order cycle comes to 4.5% of the invoice value. On a £20,000 supplier invoice, that's £900.

What does this order generate? If the goods sell at a 40% gross margin, that's £8,000 in gross profit from a £20,000 order. The financing cost is £900 – about 11% of the margin generated, or roughly 4.5% of the order value.

Is that trade-off worth making? For most product businesses running healthy margins, yes – especially if the alternative is not taking the order at all, delaying it by a quarter, or funding it by drawing down on cash you need elsewhere.

This is the calculation worth doing. Not the annualized projection.

Supplier financing vs working capital loan vs cash: a comparison

To make this concrete, consider a product brand placing a £20,000 supplier order. The goods take three months to arrive and sell, after which the customer pays. Here's how the economics compare across three funding approaches.

Option 1: Pay from cash reserves

No financing cost. But £20,000 leaves your account on day one and doesn't come back for around 90 days. During that window, it's unavailable for anything else – the next order, a marketing push, payroll, an unexpected supplier deposit. If you have cash sitting idle and no better use for it, this works fine. But most growing brands don't have idle cash. Every pound in the bank is doing a job – or needs to be.

Option 2: A working capital loan or bank credit line

Banks offering working capital finance to SMEs typically charge somewhere between 7–12% per annum – and often more once arrangement fees and non-utilization charges are factored in. On a three-month draw of £20,000, that might work out to £350–600 in interest – cheaper in absolute terms than a supplier financing facility.

The catch: getting approved takes time, sometimes months. Credit limits are often conservative for early-stage brands. And when you're growing fast and need to increase limits quickly, banks move slowly. For many product businesses, the working capital loan is theoretically cheaper but practically unavailable when you actually need it.

The UK Finance Business Finance Review Q4 2025 notes that medium-sized businesses are increasingly turning to alternative finance solutions to manage working capital, in part because overdraft demand has moderated even as cost pressures persist.

Option 3: Supplier financing

Using a platform like Treyd, you finance the £20,000 order for three months at a flat fee – say 1.5% per month – and pay £900 to unlock the capital. This is how most purchase order finance facilities work: the provider pays your supplier directly, and you repay once the goods have sold. The fee is shown upfront, there's no collateral required, and the facility draws down per invoice, which means you only pay for what you use.

The total outlay is £900 more than funding from cash – but your £20,000 stays available for the next order, for marketing, for operations. No option is universally better. The right one depends on where your business is and what the capital could otherwise be doing.

	Cash purchase	Working capital loan	Supplier financing
Cost for 3-month cycle	£0	~£350–600	~£900
Cash tied up	£20,000	£0	£0
Approval required	No	Yes – slow	Fast
Collateral needed	No	Often	No
Scales with order volume	No	Limited	Yes
Visible upfront cost	No	Partial	Yes, always

The cost of not financing

There's a cost that doesn't show up on any fee schedule: the cost of declining an opportunity because the cash wasn't there. The Sage SME Pulse (March 2026) found that while SME revenues grew 3.3% over the past year, capital investment has been falling for more than four years. Businesses are performing, but holding back. For product brands, that caution has a direct cost: every order not taken because the cash wasn't there is margin that never materializes. PwC's Working Capital Study 25/26 puts the structural pressure in sharper focus: days inventory outstanding for the most cash-intensive sectors in Western markets has risen 13.6% over the past decade – meaning more capital is tied up in stock for longer than ever before.

Product businesses face this more than any other kind. A retailer wants a large order. A supplier is offering a one-time discount for a bulk purchase. Your bestselling SKU needs a reorder and the previous cycle's revenue hasn't come in yet. Each of these is a moment where the availability of capital determines what happens next – and where "no" has a real price attached to it.

Consider what happens when a brand passes on a £20,000 order because it doesn't have the cash. At a 40% gross margin, that's £8,000 in foregone profit. The supplier financing fee to have taken that order would have been £900. The cost of not financing it was nearly nine times higher – not as a line item, but as revenue that never existed.

That's before factoring in the compounding effects: losing momentum with a retail partner, missing a seasonal window, letting a competitor fill the shelf space instead.

Early payment discounts are another place the math gets interesting. Many suppliers offer discounts of 1–3% for payment within 10 or 30 days. If a supplier is offering a 2% discount on a £20,000 invoice and your financing cost is 1.5% for a one-month cycle, taking the discount with financed capital generates net savings. You come out ahead – and your cash stays in your account.

When supplier financing makes sense – and when it doesn't

Supplier financing earns its fee when the return on deployed capital is higher than the cost of accessing it. The same principle applies to any purchase order finance facility: if the margin the order generates outweighs the cost of funding it, the math works. The businesses that benefit most tend to share a few characteristics: they're growing faster than their cash cycle can support on its own, they have healthy margins that make the cost relatively small compared to what the order generates, and they have a clear picture of when the cash comes back.

It's worth being honest about when it doesn't make sense too.

If your margins are very thin – say, under 15% – the financing cost starts to take a significant bite out of what the order actually generates. In that case, the conversation probably needs to start with pricing, not financing.

If your cash conversion cycle is very long – well over 120 days – the cumulative fee can become material. That doesn't mean financing is off the table, but it does mean the calculation needs to be done carefully rather than assumed.

If the underlying problem is structural – you're consistently losing money, or you're using financing to delay an inevitable cash crisis – then additional facilities won't fix it. Financing is a growth tool, not a rescue mechanism.

How Treyd's pricing works

Unlike bank loans or revolving credit facilities, Treyd charges a flat fee per financed invoice. No annual fees, no monthly fees, no sign-up costs, and no charges for the facility sitting unused. You pay only when you use it, and the fee is shown clearly before you confirm – so there's no ambiguity about what an order will cost.

The fee is based on the financed amount and the repayment term you choose – between one and five months. A three-month cycle at 1.5% per month costs 4.5% of the financed amount. A one-month cycle at the same rate costs 1.5%. Because repayment terms are set per invoice, you're only ever paying for the time you actually need. It's the same mechanic as most purchase order finance facilities – but with a simpler experience and no hidden charges.

Fees vary between customers depending on business profile, and the exact rate is confirmed when you receive your Treyd limit. What doesn't vary is the structure: one transparent fee, always visible before you commit.

Summary

Supplier financing looks expensive if you measure it the wrong way. Annualizing a short-term trade finance fee – whether it's a purchase order finance facility or a platform like Treyd – and comparing it to a mortgage rate is a category error. It leads a lot of founders to dismiss a tool that could genuinely help them grow faster.

The right framework is simpler: what does this order cost to finance, what does it generate, and what does having the cash available for something else make possible? For most fast-growing product businesses, that calculation comes out clearly in favor of using financing – not as a last resort, but as a deliberate, repeatable part of how they run order cycles.

The expensive choice, more often than not, is leaving the order on the table.

About Treyd

Treyd is working capital built for product businesses. We help fast-growing brands, wholesalers, and distributors close the gap between paying suppliers and getting paid by customers – so cash flow stops being the thing that slows you down.

Buy first, pay suppliers later. No collateral, no lengthy bank process – just a transparent flat fee and a simple experience built around how product businesses actually work.

Over 1,500 brands trust Treyd to fund their growth. See how at treyd.io/customers →

💜 Grow faster. Keep control. Bet bigger.