Consumer packaged goods (CPG) brands often invest heavily in raw materials and inventory upfront, yet cash flow from sales might not materialize until months later. This is where efficient working capital management comes into play to ensure the company’s sustained growth.

In this article, we will discuss how to find working capital for CPG companies like yours to effectively secure financial resources for your operations.

What is working capital?

Working capital is the difference between a company’s current assets and its current liabilities. Current assets for a CPG company might include inventory, accounts receivable, and cash on hand. Meanwhile, its current liabilities could cover accounts payable, short-term loans, and payroll.

This metric is important to track as it serves as a key indicator of a company’s operational efficiency and financial health. Adequate working capital ensures that a company can cover its short-term obligations, such as paying suppliers, meeting payroll, and managing day-to-day expenses. In contrast, insufficient working capital can lead to liquidity issues, missed opportunities, and even insolvency.

How to calculate net working capital

To get your net working capital, simply follow this formula:

Working Capital = Current Assets – Current Liabilities

If your net working capital is less than 1, then this may indicate difficulties in meeting short-term obligations. This situation can be particularly problematic for CPG companies that often have significant upfront costs related to production, packaging, and distribution.

On the other hand, anything that falls between 1.5 and 2 is typically considered healthy. It suggests that the company has sufficient resources to cover its operational expenses and invest in future initiatives. 

It’s essential to note that excessively high working capital, while seemingly positive, might signify inefficiencies such as excess inventory or underutilized assets.

How does working capital affect your cash flow?

Working capital can change, either positively or negatively, over a specific period, typically a fiscal quarter or year. These fluctuations can significantly impact another critical aspect of a CPG company’s financial health: cash flow.

Positive changes in working capital (from increases in current assets or decreases in current liabilities) typically result in a temporary decrease in cash flow, as cash is tied up or used to pay off liabilities. 

On the contrary, negative changes in working capital (like decreases in current assets or increases in current liabilities) often lead to a temporary increase in cash flow, as cash is generated or freed up. 

Sources of working capital for CPG companies

Maintaining a healthy working capital is crucial for a CPG business to launch or stay afloat. However, the nature of the industry often makes it challenging to access traditional bank loans and lines of credit. The industry has unique capital cycles, where companies purchase inventory months before it is sold, often with unpredictable external factors influencing demand.

As a result, CPG companies can struggle to secure financing from traditional banks. To overcome this challenge, founders must master how to find working capital through alternative financing providers, which include the following:

1. Equity crowdfunding

Equity crowdfunding connects startup founders with new angel investors or venture funding without straining cash flow on loan repayments. The downside to this option, however, is that it can be excessively dilutive, reducing the company’s ownership stake while still holding founders fully responsible for repaying the funding.

2. Inventory financing

For CPG brands looking to sustain growth, inventory financing emerges as a strategic solution. This non-dilutive option leverages your inventory as collateral, ensuring swift access to funds while demonstrating your ability to meet repayment obligations. Among available options, this may be the most certain route with the fewest disadvantages. Kickfurther, in particular, is an excellent choice for your inventory financing needs, offering a quick registration process and flexibility to set your repayment schedule.

3. Working capital line of credit

Akin to a credit card, this option offers a revolving credit account. CPG founders can borrow based on immediate needs and repay the amount over time, with a predetermined credit limit. This is a flexible choice as you can access funds as required, without the burden of immediate repayments. A credit line can also help smooth out cash flow fluctuations and provide a safety net for unforeseen expenses, offering further financial stability for your business.

4. Seed capital

Often sourced from private investors in exchange for a stake in the company or profit share, this choice can be instrumental for newer CPG startups. In many cases, initial funding is typically provided by contacts close to the founder, such as friends or family. Once secured to kickstart the business, seed capital not only provides necessary funding but also bolsters credibility for larger bank loans or venture capital.

Closing thoughts

To better understand the financial standing of your CPG company, look no further than your working capital. Keeping a healthy score for your working capital should be prioritized to sustain growth and competitiveness within the market. However, given the unique nature of this industry, this may come with several challenges.

Thankfully, an array of alternative financing options is available for CPG businesses looking for external funding, all of which offer flexibility that traditional banks may not provide. 

Consider seed capital and equity crowdfunding for fast transactions that boost your network, given you can accommodate the loss of equity. Safer options are available for founders who want to keep full ownership through credit lines or inventory funding like Kickfurther. 

Your choice of a working capital source should depend on your goals, priorities, and immediate needs as a business founder. It’s crucial to assess the trade-offs when selecting the right financing option for your CPG company.

How Kickfurther can help

Kickfurther is the world’s first online inventory financing platform that connects companies with a community of backers, offering funding that traditional sources may not provide. We empower brands to access funds for their largest expense—inventory—by reaching a community of buyers eager to support your growth. With Kickfurther, you can fund your inventory on consignment and repay the funds as you make sales.

Here’s why Kickfurther is your top choice for inventory funding:

• No immediate repayments: Pay back only when your inventory sells, with the flexibility to set your repayment schedule based on your cash flow.
• Non-dilutive: Keep full ownership and control of your business as Kickfurther does not take equity in exchange for funding.
• Not a debt: Kickfurther operates outside traditional loans, so it doesn’t add debt to your books.
• Quick access: Kickfurther can easily fund your entire order and cover supplier payments whenever needed.

Get funded within minutes when you register at Kickfurther! Sign up and join our funding marketplace today.

When the demand for your products increases, it can be a double-edged sword for your business. On the one hand, it’s a sign of success, but on the other hand, sudden spikes in customer demand can strain your resources. 

Whether you’re a startup or a seasoned enterprise, keeping up with demand while managing cash flow can be challenging. Traditional loans may not always be accessible due to factors like limited credit history or insufficient collateral. This is where supplier financing comes in.

This strategic solution is your ticket to improving cash flow and maintaining optimal relationships with suppliers. 

Let’s explore what supplier financing is, what it’s not, how it works, its benefits, its drawbacks, and more.

Understanding supplier financing

Supplier financing is a financial arrangement where a business (buyer) partners with a financial institution (funder) that will pay their suppliers on the buyer’s behalf. After purchasing goods or services, the supplier can request early payment and the funder will provide payment quickly with a small fee deducted. The buyer then repays the funder on a predetermined future date.

The key benefit of supplier financing programs, also called reverse factoring, is that suppliers can receive payment within days while buyers may receive longer payment terms than what the supplier offers. This can strengthen both parties’ financial positions by boosting cash flow and working capital. Companies may use this option as needed, such as during slow seasons if demand fluctuates seasonally. 

The differences between supplier financing and other financing options

Of course, supplier financing is not the only inventory funding option. Some alternatives may offer faster access to capital and more competitive rates. However, they come at a cost. 

Here are some popular choices for inventory funding:

• Small Business Administration (SBA) loans offer long-term funding and partial coverage for inventory costs, but they may require collateral and have immediate repayment expectations. 
• Traditional loans or lines of credit cover between 25% and 80% of inventory costs, but they may require outflows to cover the remaining inventory cost and payments before inventory generates revenue.
• Finance companies specializing in serving SMB CPGs offer fixed Annual Percentage Rates (APRs) and monthly payment structures, making them predictable, but they impose qualification criteria based on company revenue.

These financing options can be fitting for entrepreneurs and founders who don’t mind paying installments immediately or via daily debit. However, for businesses looking to close the distance between immediate supplier payment and sales turnover, going for a supplier financing program is a more suitable route.

How supplier financing works: A simple 5-step process

The supplier financing process typically involves these key steps:

1. The buyer begins the process by submitting a purchase order to the supplier for the needed goods or services. This order details the items, quantities, pricing, delivery date and other key terms.
2. Upon receiving the purchase order, the supplier delivers the items or completes the services as specified. They also generate an invoice reflecting the final amounts owed by the buyer according to the purchase order.
3. The buyer’s accounts payable team reviews the supplier’s invoice for accuracy against the original purchase order. If approved, the invoice is forwarded to the third-party funder for payment processing.
4. The financial institution will deduct a small fee and deposit the remaining invoice balance directly into the supplier’s account.
5. On the agreed-upon payment date listed on the invoice, the buyer pays the full outstanding amount directly to the financier rather than the original supplier. This completes the transaction.

The benefits of supplier financing

Supplier financing offers a range of benefits to both buyers and suppliers, including the following:

Improved cash flow

Supplier financing can improve a company’s cash flow by freeing up capital otherwise tied up in stock. This gives businesses more flexibility to reinvest in areas like marketing, expansion, or innovation. For example, a retailer can purchase a larger quantity of seasonal items upfront using inventory funding, ensuring sufficient inventory without draining cash reserves.

Increased sales

With the ability to maintain optimal inventory levels through funding, businesses can avoid stockouts and fulfill customer orders promptly. This leads to higher customer satisfaction and increased sales. For instance, an e-commerce company that secures inventory funding can ensure they have popular items in stock consistently, leading to repeat purchases and positive word-of-mouth referrals.

Risk mitigation

By having the right amount of inventory on hand through supplier financing, businesses can mitigate the risks associated with stock shortages or overstocking. This helps in maintaining a balanced inventory level and reducing the chances of dead stock. For instance, a food distributor can use supplier inventory financing to manage seasonal fluctuations in demand, ensuring they have enough fresh produce without incurring losses from excess inventory.

How Kickfurther can help

With Kickfurther, you get up to 100% funding for your inventory costs. We offer flexible repayment plans that allow you to get your inventory now and pay later when you start selling.

Kikfurther is your trusted funding partner that puts you in charge of your company and enables you to achieve growth by funding your inventory through consignment. You get the funding you need without giving up equity to other investors.

Choosing Kickfurther comes with advantages such as:

• No immediate repayments – Unlike other providers who may request repayment through daily debit, Kikfurther’s repayment schedule accounts for your sales cycle. You decide when your cash flow can support payments. 
• Non-dilutive – No equity required! You can access inventory funding without putting your assets’ ownership at risk.
• Not a debt – Since inventory financing is not a loan, it’s not registered as debt in your books. This ensures you’re not lowering your VC valuation.
• Immediate access to capital – Kickfurther helps you pay your supplier invoices when they’re due every time, regardless of your cash flow situation. We’re here to fund your inventory order(s) each time you need us to.

Oftentimes, inventory is the costliest expense for businesses, and funding it with cash may hinder growth at scale. Kickfurther helps you free up existing capital to invest in business development. Get a trusted supplier financing partner—join Kickfurther and get funded today!

Getting a small business up and running isn’t easy. You’ve got to identify your niche, find the right product sources, and manage inventory carrying costs, among many other challenges. 

One of the toughest is securing the funds needed to cover daily expenses and still be able to invest in growth opportunities. Let’s explore several financing options you’ll want to consider for your microenterprise. 

Why do you need small business financing?

Small business owners often face hurdles in generating capital, as they lack the option to sell stocks or bonds like larger corporations. Limited access to funds prevents them from buying in bulk, leading to higher production costs per unit. The lack of purchasing power further restricts their ability to negotiate favorable deals with suppliers, which could otherwise lead to reduced costs and savings. These can affect pricing competitiveness and profitability. 

Low cash reserves also make it harder for microenterprises to compete against larger companies that can provide better employee benefits and have bigger marketing budgets. 

By securing more funds, microenterprises can boost their cash flow to become more resilient to ongoing business pressures, improve efficiencies, and scale.  

7 small business financing options

Here are some popular ways to get the small business funding you need. 

1. Inventory funding 

Small businesses often struggle to get traditional financing due to limited credit history, insufficient assets to back up loans, or unsteady cash flow. Inventory funding from specialized financial institutions gives you access to financial support using your inventory as collateral. Buyers fund the inventory on consignment, so you don’t have to pay until you sell and get paid yourself. 

Pros:

• Best if you have heavy inventory needs (funds are typically a percentage of the inventory).
• Doesn’t put personal assets at risk (unless a personal guarantee is involved)
• No need for a strong credit rating 
• Fast processing 

Cons:

• Value of the inventory limits the funds 
• Rates vary from the highly competitive to the not-so-favorable. (However, Kickfurther, an innovative inventory financing platform, provides the opportunity to lock in your annual servicing cost.)

2. Traditional business loans

Business loans, typically from banks, give a lump sum that you pay back over a predetermined period. This type of financing usually requires collateral, such as real estate, vehicles, and equipment. 

Pros:

• Offers low-interest rates 
• Can’t be used for any purpose except those specified by the terms
• No need to repay early and in full

Cons:

• With stringent eligibility requirements.
• Lengthy application 
• The loan amount depends on your collateral (Real estate and savings are preferred because they have stable prices and higher liquidity.)

3. Business lines of credit

Lines of credit provide flexible access to funds up to a set limit from which you can draw as needed. This can be secured, using assets as collateral, or unsecured, without requiring collateral but possibly at higher interest rates. You can get this from banks, credit unions, and online lenders. 

Pros:

• Pay interest only on funds used
• Can be used flexibly  

Cons:

• Offers lower loan amounts compared to traditional bank loans.
• Can have double-digit APRs (although they’re lower than credit cards)  
• Slower turnovers mean smaller loans

4. Revenue-based financing 

Revenue-based financing provides your business with capital, and, in return, you commit a portion of your future gross revenues. This means you pay back the borrowed amount plus fees from your sales until you pay back the total amount. 

Pros:

• Flexible payments that adjust with your income
• No collateral

Cons:

• Not available for pre-revenue companies.
• Small business funding amount is tied to revenue 
• The required monthly payments limit cash flow

5. Merchant cash advance (MCA)

MCA is small business funding that gives an amount upfront in exchange for a portion of your future income or debit or credit card sales. The lender withdraws from your business bank account daily or weekly based on your sales. 

Pros:

• Fast and easy processing 
• No collateral
• Sales-based payments, so  you have some flexibility during slow periods

Cons:

• Fees can be very high
• Daily or weekly payments can strain cash flow
• Less regulated, which can lead to unfavorable terms

6. Credit cards

Business credit cards give you a revolving line of credit. This allows you to make purchases up to a certain limit and pay back over time, with interest on any remaining balances. 

Pros:

• Offers flexible use 
• Earns you rewards and cashback on purchases
• Helps your business build a credit history

Cons:

• Higher interest rates if balances are not fully paid
• May require a personal guarantee
• Costly annual fees and penalties for late payments

7. Trade credit

Trade credit is a buy-now-pay-later arrangement between businesses. Your supplier allows you to purchase goods or services on account, usually within 30-90 days. This form of credit is common in B2B transactions, such as in wholesale and manufacturing industries.

Pros:

• Improves cash flow by delaying payment for supplies
• Strengthens supplier relationships, which can lead to better terms
• No interest if you pay within the agreed period

Cons:

• May have restrictive terms (e.g., might require immediate repayments)
• May damage business relationships long term if payments are late
• Strict supplier terms can impact business operations during tight financial conditions 

 

Choosing the best small business financing solution

To find small business funding that’s a good fit for you, evaluate your cash flow, revenue, and expenses. Determine the capital you require to grow at the pace you want, and review your financial projections. Lastly, compare your options by considering interest rates, fees, repayment terms, and your ability to meet these terms. Also, consider consulting with reputable financial advisors. 

 

If you’re searching for suitable financing, inventory funding may be exactly what you need. But, to ensure optimal inventory funding to satisfy the demands of your small business, you must choose the right partner: Kickfurther. 

How can Kickfurther help?

Kickfurther is a trusted, long-term growth partner built by founders for founders. 

We’ve resolved the difficulties of managing the cash flow cycles between producing and selling consumer goods we experienced as CPG founders. We offer these distinct benefits:  

• No immediate repayments – Do not pay until your product sells. Other providers may debit your account daily as part of a repayment schedule. Loans require repayment before your sales cycle has even begun. With Kickfurther, you control your repayment schedule.
• Non-dilutive – We don’t take your equity. We do not require equity in your business to access inventory funding.
• Not a debt – This is not a loan, so it does not put debt on your books, which can further constrain your working capital/access to capital or lower VC valuation.
• Quick access – You need capital when supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory. 

Say ‘yes’ to opportunities when lightning strikes, and stay ahead of demand with fast, flexible funding for up to 100% of your inventory. With Kickfurther, remain in full control of your business. Contact a Kickfurther expert to find out how it works.

If you are in the fashion business, you know that cash flow is king and that staying ahead means having the right financial strategies in place. But what if you’re struggling to secure the funds needed to keep your apparel business flourishing? This is where purchase order financing comes in. In this article, we’ll take you through the fundamentals of purchase order financing, empowering you to make informed decisions that drive your apparel business forward.

Understanding Purchase Order Financing: How Does it Work?

Purchase Order Financing is a specialized form of funding designed to help businesses, including apparel companies, fulfill large orders when they lack the necessary capital. It provides funds upfront, bridging the gap between production costs and customer payments. It’s beneficial for businesses experiencing rapid growth, seasonal fluctuations, or those with limited access to traditional financing options.

So how does purchase order financing work, exactly? 

When a company receives a sizable purchase order but lacks the necessary capital to cover production or procurement costs, a financing entity steps in. It typically provides a cash advance to the supplier or manufacturer, allowing them to fulfill the order. Once the goods are delivered to the customer, the financing entity collects payment directly, deducts its fees, and then forwards the remaining balance to the business. This straightforward process empowers companies to seize growth opportunities without being hindered by financial limitations, making purchase order financing an invaluable resource for optimizing inventory management and expanding operations.

Benefits of Purchase Order Financing for Apparel Businesses

Purchase order financing offers a lot of advantages, especially to apparel companies. It helps these businesses: 

Overcome Cash Flow Challenges

Apparel businesses frequently receive large purchase orders from clients or retailers as they grow and expand their market presence. However, these businesses also encounter cash flow hurdles, particularly when required to finance production costs upfront before receiving client payments.

Purchase order financing effectively mitigates this challenge by furnishing the essential capital to cover production costs. This ensures seamless order fulfillment and revenue generation, enabling apparel businesses to meet customer demand and capitalize on sales opportunities without the fear of cash flow disruptions.

Manage Seasonal Fluctuations

Purchase order financing offers a strategic advantage to apparel businesses in managing seasonal fluctuations. During peak seasons, when demand surges and production costs escalate, companies often face strain on their cash reserves. With purchase order financing, apparel businesses can secure the necessary funds to ramp up production and meet heightened demand without depleting their working capital. This flexibility enables them to capitalize on seasonal opportunities, fulfill large orders, and maintain consistent operations throughout fluctuations in demand, ultimately fostering sustained growth and profitability.

Build Relationships with Suppliers

Purchase order financing plays a pivotal role in nurturing strong bonds between businesses and their suppliers. By offering upfront capital for production expenses, this financial tool builds trust and reliability. Suppliers are assured of timely payments for their goods and services, prompting suppliers to prioritize the company’s needs and potentially offer advantageous terms or discounts. Transparent and efficient transactions also enable smoother communication and collaboration, which in turn paves the way for mutually beneficial partnerships.

Enjoy a Flexible Financing Solution

Traditional loans or lines of credit often come with stringent eligibility criteria and fixed repayment terms. On the other hand, purchase order financing offers flexibility tailored to the specific needs of apparel businesses. 

For instance, Kickfurther offers purchase order funding at an estimated 30% lower cost than alternate lenders, ensuring you can fund your entire purchase order every time you need more inventory to fulfill your client’s needs. With this option, you can secure funding quickly and efficiently, with repayment typically tied to the proceeds from the completed sale of goods.

Scale Operations

Apparel purchase order financing scales alongside the growth of the business, enabling companies to fulfill increasingly larger orders as demand expands. This scalability is particularly beneficial for startups and emerging brands seeking to establish a foothold in the market and build a reputation for reliability and quality.

Expand Market Presence

To remain competitive in the apparel industry, businesses must continually innovate and adapt to changing market trends and consumer preferences. Purchase order funding facilitates product innovation and market expansion by providing the capital needed to develop new designs, launch marketing campaigns, and penetrate new markets. This allows apparel businesses to stay ahead of the curve, differentiate themselves from competitors, and capture market share.

Final Thoughts

Apparel purchase order financing stands out as a strategic choice for meeting the specific challenges of fulfilling large purchase orders because it leverages the value of confirmed purchase orders themselves. This means that businesses can access funding based on the strength of their sales pipeline, rather than relying solely on their financial history or asset base. 

Compared to other financing options, purchase order financing provides a targeted solution for securing the capital needed to fulfill orders and drive growth, while minimizing risk and maximizing efficiency.

How Kickfurther Can Help

Let Kickfurther be your trusted funding partner and get funding for up to 100% of your purchase orders at competitive rates. Fund your entire purchase order(s) on Kickfurther each time you need more inventory so you can put your existing capital to work growing your business without adding debt or giving up equity.

Still not convinced? Here are some more reasons why you should choose Kickfurther:

• No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
• Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
• Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
• Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.

Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. By funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it.

Ready to grow and scale your business? Create a free business account today, complete the online application, and review a potential deal with one of our account reps to get funded within minutes to hours.