Working Capital for Production: What Are Your Options?
Key Takeaways
Lines of credit offer flexible, revolving access to short-term capital and are ideal for bridging gaps between production payments and delayed retailer terms.
Purchase order financing helps brands fulfill large, upfront-cost POs without draining existing reserves, but fees can add up if timelines slip or retailers pay late.
Invoice factoring converts outstanding receivables into immediate cash flow, enabling brands to reinvest quickly—though it reduces margin and depends on customer reliability.
Matching the right funding tool to your production rhythm and risk profile can prevent cash flow bottlenecks and keep your brand growing without overextending resources.
For CPG brands, production can be more than expensive. It's also relentless. The need for raw ingredients, packaging, and freight services, among other things, only increases as you grow. While growth problems are good problems, paying tens of thousands of dollars before a single unit hits the shelf can put a strain on CPG brand finances. That's especially true if your revenue doesn't land for 30, 60 or 90 days based on net terms.
I know payment timing can be brutal for CPG brands and wineries of all sizes. I've worked with brands that were one or two late PO approvals or delayed shipments away from derailment, and lack of consistent cash flow can increase the risks for such hiccups. It also reduces your ability to deal with them. Many founders use patchwork funding to massage cash flow, relying on personal savings or credit cards to make ends meet.
What I want CPG brands to realize is that access to working capital for production before you need it can reduce these stressors. You're not doing anything wrong if you have occasional cash flow gaps — the system simply isn't front-loaded for most CPG brands, especially those that take a bootstrapping approach.
In this guide, I'll break down three CPG production financing options and discuss how to choose one that fits your stage, production rhythm, and risk tolerance.
We'll use the fictional brand Hatchling Snacks, a frozen protein waffle company, to help you see the real-world applications of these options. Here's what to know about Hatchling Snacks before we get started:
Retailer payment terms: Net 60
Co-packer payment terms: 50% up front, 50% on delivery
Production time: 3 weeks
Monthly sales: $100k
Current CCC: around 90 days
Lines of Credit: Flexible Capital When You Need It
A line of credit offers you revolving access to funds when you need them. You're only charged interest on the credit you use, and the credit "revolves," so you can use it again after you pay it back. Lines of credit are like credit cards, but they tend to come with better terms for creditworthy businesses.
Benefits of a line of credit include:
Flexibility to cover short-term gaps in cash flow, which can help you bridge the gap between paying vendors and expenses and getting paid by retailers
You only pay interest on credit you use and carry over from statement to statement, letting you control the cost of your debt
Lenders may approve lines of credit faster and require less stringent documentation when compared to loans
Some downsides of this working capital option are that variable rates might creep up over time and businesses might use them as a cash crutch, disguising financial concerns until they become more problematic.
That said, when used intentionally, a line of credit can be a powerful tool. Let's say Hatchling just completed a 3-week production run, for example. Its co-packer requires 50% payment upfront and 50% on delivery, but the brand might not see payments rolling in for another 50-60 days. I've definitely learned you can't pin your hopes on early invoice payments, even when you offer incentives.
By drawing $50,000 from its line of credit, Hatchling can pay the final co-packer invoice without delaying delivery. Once retailer payments clear, Hatchling can repay the debt, minimizing interest and keeping production on track.
Purchase Order (PO) Financing: Up-Front Help When Orders Outpace Cash
For recurring shortfalls, lines of credit can work well. But when demand jumps and a single PO could outstrip your available cash, PO financing may be a better option.
PO financing is a little like a vehicle loan — except in this case, it's a large purchase order acting as collateral securing the financing rather than a car or truck. It works like this:
A CPG brand secures a large PO
A lender agrees to pay supplier costs — all or in part — related to the PO
The brand fulfills the PO
The retailer pays as agreed
The lender gets repaid with interest
PO financing provides CPG brands with a way to say "yes" to big orders even when they don't have the cash on hand to fulfill them. Lenders focus more on the strength of the PO than traditional financing factors, which can make it easier to qualify for PO financing, and you can preserve other working capital for more general business expenses. However, PO financing isn't the cheapest way to access working capital, and your fees and interest can add up if retailers pay late or a shipment is delayed.
Purchase order financing works best when you have clear timelines, reliable suppliers, and retailer customers with strong creditworthiness and confirmed high demand. For example, let's say Hatchling Snacks receives a $200,000 PO from a national retailer preparing for back-to-school season. That's double Hatchling's average monthly sales, and to fulfill the order, it needs to purchase a lot of ingredients and secure extra production time with its co-packer.
It doesn't have the $100,000 needed to fund everything up front. Instead of passing on the opportunity or scrambling for cash, Hatchling works with a PO financing company to cover supplier costs. Once the waffles ship and the retailer pays, the lender gets repaid. Hatchling keeps the margin, minus a financing fee, and possibly a large step toward future growth.
Invoice Factoring: Turn Receivables Into Working Capital
If you've already shipped products and billed one or more retailers, invoice factoring is a way to get access to most of your incoming cash now rather than later. Here's how it works:
You've already billed the retailer with net 30 (or longer) terms
An invoice factoring company gives you 80%-90% of that amount up front
It collects on your behalf, passing on most of the rest of the money but keeping a fee
Invoice factoring can be a fast way to turn unpaid invoices into working capital and avoid waiting on net 30, 60, or 90 payments when you need cash flow now. However, factoring fees can eat into your margin, and delays on the retailer's end could extend repayment timelines and reduce the final amount you receive. Successful access to invoice factoring also requires you to have creditworthy customers and well-documented invoices.
Let's look at how invoice factoring could work for a growing brand. Imagine Hatchling ships a $75,000 order to a national retailer. The terms are net 60 because Hatchling wanted to offer favorable options to attract this large retailer. But Hatchling needs $50,000 now to lock in packaging and reserve co-packer time so it can fulfill another large order.
By factoring the invoice, it receives 85% of the $75,000, or $63,750. That's more than enough to cover the current expenses, and when the retailer pays, the factoring company takes a fee and passes on the remainder. By leveraging invoice factoring, Hatchling may be able to take on larger or more frequent orders without burdening cash flow.
Match the Tool to the Cycle
Each of these working capital tools exist for specific purposes, but they aren't one-size-fits-all accounting options. The right CPG production financing depends on your production cycle, sales models, risk tolerance, and other factors.
Line of credit PO financing Invoice factoring
Best for Managing short-term cash flow gaps Supporting the fulfillment of large orders you can't afford upfront Speeding up cash after shipping products
Advantage Flexible, reusable, and interest is only Lets you say "yes" to big orders without tying up existing cash Fast access to unpaid receivables
charged on what you use
Drawback Risk of overuse and rate creep Late retailer payments could lead to higher costs and fees Reduces your margin and depends on customer
payment behavior
Use Case Bridging the gap between paying Scaling up for a peak season or unique launch Funding the next run while waiting on payments
vendors and receiving retailer payments with longer terms
Lines of credit for food brands, invoice factoring for small businesses, and PO financing for CPG companies are all good cash flow tools. But it's essential to understand and plan for cash flow needs before you're in a crunch situation. That way, you can build in flexibility and make smart decisions that protect your margins.
If you need help mapping out cash flow or choosing the right working capital for production, contact us. We'll help you plan capital around your business needs and not the other way around.
