The main difference is timing. Purchase order funding pays for what you need to deliver an order you have won. Invoice discounting and factoring come later, once you have delivered and issued the invoice. Between those two, discounting lets you choose which invoices to fund, while factoring usually takes in your whole debtors' book.
Where each one sits
- Your customer sends you a confirmed purchase order. You need to pay suppliers to fill it. This is where purchase order funding fits.
- You deliver and send the invoice. Your customer has 30, 60 or more days to pay. This is where invoice discounting or factoring fits.
- Your customer pays. The funding is settled from that payment.
Some businesses need help at both stages: PO funding to deliver, then the invoice funded while they wait to be paid. If that is you, ask up front whether one funder can do both or whether it takes two.
Side by side
| Purchase order funding | Invoice discounting | Factoring | |
|---|---|---|---|
| What it funds | Supplier or transaction costs to deliver a confirmed order | Some or all of the invoices you choose | Your whole debtors' book |
| What you need to show | The purchase order itself | Real, issued invoices to other businesses | Your debtors' book |
| How it is settled | From the proceeds once your customer pays | As each funded invoice is paid | Your customers pay the factoring house directly (i-Discounting, for example) |
| Cost | Depends on the transaction. The funder confirms it | Indicative: about 1.5% to 5% per 30 days | One SA factoring company publishes 3% per month of invoice value, plus a R300 payment processing fee |
Purchase order funding and invoice discounting are two of the funding types we arrange. Factoring is not on our list. We explain it here so you can compare.
Invoice discounting
The funder advances part of the invoice value before your customer pays, and the facility is settled once your customer (the debtor) pays. Depending on the funder, this may involve a cession or purchase of your receivables.
One South African provider, i-Discounting, describes it as "the process whereby a business can sell some or all its invoices to a third party". The point is choice. You can fund one large invoice and leave the rest alone.
The cost runs for as long as the invoice is unpaid. At about 1.5% to 5% per 30 days, a R100,000 invoice paid in 30 days costs about R1,500 to R5,000. If the customer takes 60 days, expect roughly double. Our page on the true cost of business funding works this through.
Personal surety is common on this type of facility, and some arrangements involve the funder contacting your customer directly. Confirm both before signing.
Factoring
i-Discounting describes factoring as an arrangement where the client "cedes its entire debtors' book to a factoring house". So it covers all your invoices, not the ones you pick. With factoring, your customers are usually told. i-Discounting, for example, says "All your debtors would have to pay directly to the factoring house", and the factoring house takes over your credit control.
In our view, factoring can make sense when most of your sales are on account and you want the whole book funded as a matter of course. One SA invoice finance house says: "Clients generally make use of factoring where they have various debtors on their books, in general more than 10 different debtors." If you only need help with the odd large invoice, discounting is usually the better match.
Purchase order funding
The funding helps cover the supplier or transaction costs needed to deliver the order. Once your customer pays, the funding is settled from the transaction proceeds. It is transaction-specific commercial funding, and the exact structure depends on the funder's agreement.
The funder will usually want to see the purchase order itself and may take security over the proceeds. It won't work if the order isn't confirmed yet. If what you have won is a tender, not a purchase order, see tender funding.
Which fits you
- You've won an order and can't pay the supplier to fill it: purchase order funding.
- You've delivered and invoiced, and one or two big invoices are holding you up: invoice discounting.
- Most of your sales are on 30 to 90 day terms and the gap never closes: look at factoring as well as discounting.
- Most of your income is card or cash sales, not invoices: none of these. Look at a merchant cash advance or working capital.
All three are for businesses that sell to other businesses. We work with registered Pty Ltd companies and close corporations (CCs), trading for 12 months or more, with funding from R50,000. You pay us no broker fee. The funder may pay us a commission or referral fee on a funded deal.
Next step
Check your fit, or read more about invoice discounting and purchase order funding.
Sources
- i-discounting.co.za: Invoice discounting is the process whereby a business can sell some or all its invoices to a third party
- i-discounting.co.za: Clients generally make use of factoring where they have various debtors on their books, in general more than 10 different debtors." Read 4 Nov 2026
- invoicefactoring.co.za: 3% per month of invoice value" and "R300 payment processing fee