How to fund a co-packer 50% deposit: pre-shipment financing for CPG brands

Brands can leverage purchase order financing and consignment models to bridge the gap between paying a deposit and receiving revenue without draining cash reserves. For Consumer Packaged Goods (CPG) founders, securing a major retail partnership is a milestone achievement that often triggers a paradox: the "pre-shipment gap." While a purchase order from a major retailer signals growth, the immediate reality involves transferring large sums of cash to manufacturers weeks or months before the customer pays the invoice.

Navigating this financial hurdle is critical for scaling a business in 2026. The transition from self-manufacturing to large-scale contract manufacturing requires a shift in financial strategy. Founders who rely solely on equity or cash on hand often find themselves unable to fulfill the very orders that would scale their business. By utilizing specific pre-shipment financing tools, brands can fulfill large orders and protect their equity for strategic growth rather than working capital.

The 50% hurdle: overcoming co-packer deposit requirements

Purchase order financing and consignment models provide the specific liquidity needed to pay manufacturers upfront, ensuring production begins without depleting your operating account. When a brand lands a major purchase order (PO), the celebration is often cut short by the Contract Manufacturer’s (CM) invoice. CMs and co-packers often require a significant deposit, commonly 30-50% upfront, to initiate a production run, with the remaining balance due upon shipment or delivery.

This requirement creates a massive cash outlay at the exact moment a business is trying to scale. For a brand receiving a $500,000 PO, this means finding up to $250,000 immediately to secure line time and raw materials. If the retailer pays on Net 60 terms, the brand might be out of pocket for four to six months. This "cash trough" is the primary reason many growing brands face insolvency despite having strong sales on paper.

Standard cash reserves are rarely sufficient to cover these surges in production costs. Attempting to fund these deposits through operating cash flow can lead to missed payroll or an inability to cover other overhead expenses. Furthermore, selling equity to fund inventory is an expensive mistake; diluting ownership to pay for packaging or ingredients hurts long-term value. This is a working capital problem that requires a specific debt solution designed for the production cycle.

Why co-packers demand cash upfront and banks won't fund it

Manufacturers require deposits to cover their own heavy labor and material liabilities, while traditional banks typically refuse to fund these deposits because they cannot collateralize unfinished "work-in-process" inventory. Your co-packer is a service business with high overhead; they cannot afford to finance your growth by fronting the cost of raw materials. If a brand cancels an order after ingredients are mixed, the manufacturer is left with unsellable inventory, making the deposit their primary insurance policy.

Traditional bank term loans and lines of credit often fail here due to conservative risk models regarding asset-based lending. Banks prefer to lend against finished goods or verified accounts receivable—assets that can be liquidated if the borrower defaults. In the pre-shipment phase, the "asset" is unmixed ingredients or raw packaging, which has little liquidation value. Consequently, traditional lenders view this stage as too risky.

Similarly, general invoice factoring platforms cannot fund the initial deposit because no invoice exists yet. Factoring requires a completed delivery and an approved invoice to advance funds. Since the deposit is needed to start production, factoring is structurally impossible at this stage. This necessitates pre-shipment financing, a category designed explicitly to cover raw materials and labor. For brands dealing with US-made goods destined for export, government-backed options like the  SBA Export Working Capital Program  or  EXIM Bank  loan guarantees explicitly support pre-shipment financing, providing a safety net that private banks often won't offer alone.

Option 1: purchase order financing for direct supplier payments

Purchase Order (PO) financing is a tool where a lender pays your supplier directly based on a verified purchase order from your customer. Unlike a cash loan deposited into your bank account, PO financing is transaction-specific. The lender assesses the validity of the PO from the retailer and the ability of the manufacturer to produce the goods. Once approved, the lender issues payment directly to the co-packer to cover the deposit.

The workflow minimizes risk for all parties:

• Direct Payment: The lender pays your co-packer the deposit, enabling them to purchase raw materials.

• Production & Delivery: Goods are produced and delivered to the customer (the retailer).

• Settlement: The customer pays the invoice directly to the lender, who deducts the principal and fees before remitting the profit to you.

Approval for  purchase order financing  often hinges on the credit strength of your customer rather than your balance sheet. This makes it ideal for young brands with limited credit history but substantial contracts with creditworthy retailers. Specialized lenders like Triumph Business Capital often operate in this space, leveraging the creditworthiness of large retailers to underwrite the deal. If you have a PO from a major national chain, you leverage their strong credit rating to secure funding. Offers can be secured quickly, often within 48 hours, allowing you to accept large orders without upfront cash constraints.

Option 2: consignment and inventory financing

Consignment models allow funding sources to purchase inventory on your behalf and place it on consignment, paying the manufacturer directly so you don't have to. This approach is distinct from PO financing as it doesn't always require a specific B2B purchase order to be in hand. Instead, the lender acts as a purchasing partner, acquiring the inventory and retaining ownership until you sell it.

Key features of this model include:

• Sales-Matched Repayment: Repayment occurs as inventory sells, aligning cash outflows with revenue inflows.

• DTC Support: Effective for brands with strong Direct-to-Consumer history needing stock before a B2B PO is finalized.

• Supply Chain Planning: Platforms like 8fig focus on mapping out the supply chain to align funding with cash flow needs, while Flexport Capital offers trade finance specifically designed for logistics-heavy businesses.

Consignment-based lenders operate on a variation of this model, allowing users to fund inventory through a consignment approach. While this can be effective for community engagement or specific campaigns, it often involves distinct timelines and fee structures compared to institutional lending. This methodology helps maintain safety stock for ecommerce channels, providing the inventory financing needed to avoid stockouts during peak seasons.

Option 3: revenue-based financing for speed

Revenue-based financing (RBF) offers fast capital based on your sales history, where advances are repaid via a percentage of daily sales. For brands needing a deposit quickly to secure a production slot, RBF is often the fastest route, with funds landing in as little as 24 to 48 hours. Lenders analyze bank statements or ecommerce data to determine a funding limit.

Providers like Clearco and Wayflyer are prominent in this space, offering rapid funding decisions for ecommerce brands. Additionally, tools like Shopify pre-order apps can sometimes generate upfront cash from customers to help cover these costs, though often not enough for a full manufacturing run. This speed comes with trade-offs:

• Immediate Repayment: Repayment often begins immediately via daily remittances, which can squeeze cash flow before the new inventory is even produced.

• High Effective APR: If sales are strong, the loan is paid back very quickly, potentially driving up the effective cost of capital.

• Discipline Required: Unlike direct-pay PO financing, funds are usually deposited to you, requiring discipline to ensure they go to the supplier rather than other expenses.

This option is best for smaller deposit needs or when product margins are high enough to absorb the rapid repayment pace. For  CPG financing solutions , aligning the financing tool with the production timeline is crucial to avoid a cash crunch.

Comparison: marketplace versus single lender solutions

A marketplace approach forces lenders to compete for your business, allowing you to see PO financing, inventory funding, and term loans side-by-side. In the fragmented landscape of 2026, financing options vary wildly in cost and structure. A marketplace allows you to evaluate distinct product categories simultaneously.

Consider the limitations of single-lender reliance:

• General Online Lenders: General fintech lenders or platforms like Fundbox typically offer lines of credit or term loans. While useful for operating expenses, credit limits may not be sufficient for a massive production run, or they may require weekly repayments that don't match the production cycle.

• Supplier Finance Programs: Large retailers may offer Walmart supplier financing or similar early payment programs. These are excellent for getting paid early on an invoice (post-shipment) but do not solve the pre-shipment deposit gap required by the co-packer.

• Restricted Terms: A direct lender may try to force a product that doesn't fit your cycle, such as a high-fee merchant cash advance for a long production run.

Comparing offers empowers you to choose the right financing based on APR, speed, or term length. It allows you to align the financing tool with the specific nature of the capital need—matching long production cycles with milestone-based funding and short-term inventory needs with quicker, flexible capital.

Protecting the funds: tri-party agreements and direct pay

A Tri-Party Agreement is a contract between you, the lender, and the manufacturer where the lender holds funds and releases them only upon verification of milestones. This framework is essential for risk management in pre-shipment financing. It formalizes the relationship, ensuring the lender has a security interest in the goods and the manufacturer is guaranteed payment upon performance.

This structure mitigates the risk of paying 50% cash upfront. In a scenario where you wire cash directly to a co-packer who then faces financial trouble, your capital is likely lost. Under a tri-party agreement, funds are released only when specific conditions—like the purchase of raw materials or completion of a production run—are verified.

Letters of credit versus tri-party agreements

While Letters of Credit (LCs) are formal bank instruments ideal for international trade guarantees, tri-party agreements offer a more flexible, relationship-based contract structure better suited for domestic manufacturing.

• Letters of Credit: Standard for international imports. An LC is a bank's promise to pay the manufacturer upon presentation of shipping documents. This provides the assurance overseas suppliers need before shipping goods, guaranteeing payment only when specific documents prove the goods have been shipped.

• Tri-Party Agreements: Often easier to negotiate within the US. They achieve similar security goals—ensuring the manufacturer gets paid and the lender secures the goods—without the rigid complexity and high fees of international banking instruments.

Strategic costing: funding is a cost of goods

Treat financing fees as a Cost of Goods Sold (COGS) rather than just an interest expense to get a true picture of your product margin. Many founders mistakenly view financing costs solely as "overhead," which distorts pricing strategies. Incorporating the cost of capital into unit economics allows for accurate profitability assessment.

Paying 2-3% for capital is often mathematically superior to giving up equity or declining a retail order that could put your brand on the map. If a financing fee reduces your gross margin from 45% to 42% but enables you to fulfill a massive order, the absolute dollar profit is worth the percentage drop.  Expert advice on PO financing costs  suggests modeling these fees directly into your pricing strategy. Bringing a reliable payment partner to the negotiation table can sometimes even convince a co-packer to lower the deposit percentage, knowing their payment is secured.

FAQs

Here are answers to the most common questions brands have regarding pre-shipment financing and co-packer deposits.

Q: Can I use a regular business loan for a co-packer deposit?

A: Yes, but traditional loans often require collateral like finished inventory that you do not have yet. PO financing is purpose-built for this stage because it relies on the value of the purchase order and your customer's creditworthiness.

Q: Will the lender pay my co-packer directly?

A: Yes, most PO financing lenders prefer direct payment. This ensures the capital is used strictly for production and builds trust with the manufacturer, who knows the funds are secured by a financial institution.

Q: How fast can I get funding for a deposit?

A: Bridge aims to provide offers within 48 hours. Speed is often critical to securing production slots, so specialized lenders move much faster than traditional banks.

Q: Do I need perfect credit?

A: Not always. PO financing weighs the credit of your customer (the retailer) more heavily than your personal credit score. A valid PO from a strong retailer can help secure funding even with a younger business profile.

Conclusion

The 50% deposit hurdle is a solvable challenge, not a dead end for your brand's growth. Every major CPG brand has faced the challenge of having more demand than liquidity. The difference between those that scale and those that stall often lies in how they manage their pre-shipment financing.

Specialized tools like PO financing and inventory funding exist specifically to solve this timing mismatch. Rather than diluting equity, these instruments allow the production cycle to fund itself.  Compare financing options  via the Bridge marketplace to see rates and secure the capital your supply chain requires.