Financing a Promotional Products Company

The promotional products market is highly competitive. Small promotional companies can’t often get the benefits of scale that come from fulfilling very large orders. Part of the problem is that they often lack the financial resources to compete for large orders. This could be due to ongoing cash flow problems or a lack of financing. This article discusses how to finance a small or growing promotional products company. We cover the following:

  1. Slow-paying invoices affect cash flow
  2. How factoring improves cash flow
  3. Advantages and limitations of factoring
  4. Dealing with large orders?
  5. Purchase order financing helps with large orders
  6. Advantages and limitations of PO financing

1. Slow-paying invoices and cash flow

The promotional products retail environment is highly competitive and is dominated by a few larger companies. Consequently, most small promotional products companies focus on niche commercial and government clients. These clients allow you to differentiate your company and provide more opportunities. They also order promotional products regularly and in large volumes, which benefits your bottom line.

a) Selling products on net-30 terms?

Commercial clients usually buy promotional products as net-30 accounts (or longer). These terms give the client 30 or 60 days to pay their invoices. Offering credit terms to business clients is typical and expected. However, this payment delay can have a serious impact on your cash flow.

Let’s look at things from your point of view. Most small promotional product companies don’t customize the products themselves. Instead, they work with a larger vendor that handles the order. Usually, your company has to pay its vendor long before you get paid by your client. Additionally, your promotional products company must also pay overhead and other expenses regularly.

b) Do you have a cash reserve?

Companies with a cash reserve can buy and sell on terms without a problem. They can tap the cash reserve if they need funds to pay expenses. However, companies without a cash reserve can easily get into cash flow problems if they don’t manage their finances carefully. Some companies have such a thin margin of safety that a small cash problem can easily spiral out of control.

2. How invoice factoring improves cash flow

Promotional product companies with cash flow problems due to slow-paying invoices should consider invoice factoring. Factoring allows you to finance invoices from creditworthy customers who pay on net-30 to net-60 terms. Factoring accelerates your working capital and helps provide the funds to run your business and pay expenses.

Transactions are structured as accounts receivable purchases rather than as loans. This structure has simpler qualification requirements. The factoring company buys your invoices and pays you in two installments. The first installment covers up to 85% of the invoice and is paid shortly after submission. The second installment covers the remaining funds, less any fees.

Factoring lines are often used as revolving lines of financing. They can be used regularly to finance invoices when cash flow is tight. Learn more by reading “What is Factoring?

3. Advantages and limitations of factoring

Factoring lines have several advantages that can benefit promotional product companies. Here are the four most important advantages.

i) Improves cash flow quickly

Factoring can improve your cash flow quickly. This is the main advantage of the solution and is the reason that most companies seek factoring.

ii) Enables you to offer net-30 terms

Companies also use factoring to offer terms to their clients while minimizing internal financial risks. Factoring can be an effective way to add clients and grow the company’s revenues.

iii) Simple qualification

Qualifying for factoring is easier than qualifying for other financing solutions. To qualify, your company must:

  • Have quality invoices
  • Not have liens against its accounts receivable
  • Not have serious tax problems

iv) Adapts to your sales

The line is dynamic and is connected to your revenues. It can grow and adapt to your needs as your sales to quality customers increase. Increases to financing limits can usually be approved in a day or so.


Factoring lines do have some limitations. The most important limitation is that factoring lines solve only one problem. They can help companies whose cash flow problems originate from slow-paying invoices. They cannot help companies with other types of financial problems. Additionally, lines are comparatively expensive. As such, they should be used carefully in low-margin transactions.

4. Do you get very large orders?

Getting a large order can be a great opportunity if your company has the financial resources to fulfill it. These orders provide the opportunity to grow the business and service more clients.

However, a large order can also create problems if your company does not have sufficient funds or credit with suppliers. This situation puts your company in a bind. The financially conservative approach is to decline the large order. However, you will likely lose the client.

The financially risky approach is to take the order and try to find a way to fulfill the order. If your company fails to deliver the order, you will disappoint the customer. Alternatively, you can try to deliver the order by stretching cash flow and supplier payments. However, you can also get into serious financial problems.

5. How does purchase order financing help with large orders?

Purchase order financing helps promotional products companies that need funds to pay the supplier costs of a large purchase order. This solution enables you to procure the goods from your supplier and deliver the order.

The finance company evaluates your purchase order, company, and vendor’s capabilities. If the transaction qualifies, the finance company pays your supplier for all costs associated with the order. Finance companies can usually cover all (or most) of the supplier costs of transactions with a 30% gross margin. Transactions with lower gross margins may require that your company contribute some funds.

Transactions can be settled in two ways. You can combine PO financing with factoring, which can improve cash flow and sometimes decrease costs. Alternatively, the transaction can settle once your end customer pays their invoice. Learn more by reading “What is Purchase Order Financing?

6. Advantages and limitations of PO financing

Purchase order financing can provide several benefits to your company when used strategically. Here are the three most important benefits.

i) Allows you to fulfill large orders

The most important benefit of PO financing is that your company can fulfill larger orders. The line can allow you to fulfill orders that exceed your current financial capabilities.

ii) No set order limit

Lines don’t have pre-established limits. Instead, the finance company evaluates each transaction based on its merits. The most important considerations are the quality of the purchase order, your supplier capabilities, and your ability to fulfill the transaction.

iii) Easier to obtain than bank financing

Qualifying for purchase order financing is simpler than obtaining a bank line. The main qualification requirements include the following:

  • Must re-sell promotional products (can’t manufacture)
  • Profit margins above 20%, though higher is better
  • Your supplier must be reputable
  • Your client must have good business credit


Purchase order financing has some limitations to consider. It works best in high-margin transactions – which are not common in the promotional products market. However, high-margin transactions exist in some niches. Additionally, purchase order financing works only in transactions where a third-party vendor does the manufacturing and customization.

Get more information

We can provide you with a competitive factoring or PO financing quote. We offer high advances at low rates. For more information, call us toll-free at (877) 300 3258.