Financing a Promotional Products Company

Most promotional products companies are operated by small business owners, many of whom are self-employed individuals. Whereas larger companies may have several employees to handle orders and vendor coordination, most companies have fewer than five employees.

Furthermore, transactions usually follow a simple format: the promotional products company takes an order from a client and then contacts a vendor, or multiple vendors, to fulfill the order.

A challenging payment flow

The payment flow, however, can put small promotional companies at a disadvantage. Unless you have established credit, most vendors demand payment in advance for their products. At best, some vendors may let you pay upon shipment or shortly thereafter.

On the other hand, your corporate and commercial clients almost always ask for payment credit terms. This arrangement gives them the option to pay an invoice in 30, 45, or even 60 days. Most contracts have little negotiation room since larger companies like to pay their invoices on terms because it gives them free use of your products for up to 60 days.

This arrangement also creates a problem: you have to pay suppliers up front to develop and deliver the product, but then you have to wait an additional 60 days to get paid. As a result, the largest order you can take is determined by the size of your bank account, rather than your sales ability. This restriction limits your ability to grow.

However, you can solve this problem using two financing tools.

Use purchase order funding to pay vendors

If you have a large purchase order and do not have enough funds to pay suppliers, consider using purchase order funding (PO financing). This solution covers the cost of your product vendors for a confirmed purchase order from a creditworthy commercial or government customer. It’s best to use this solution for transactions that have a gross margin (Revenue – COGS/Sales Price) higher than 20%.

PO financing has benefits and disadvantages. It enables you to take on and execute large orders that exceed your current level of funding. When used correctly, PO financing can empower your company to grow exponentially without surrendering any equity to investors.

Use receivables factoring to accelerate revenues

You can also improve your cash flow by financing your invoices. Instead of waiting up to 60 days to get paid by clients, you can monetize your invoices by working with a factoring company that can advance funds to your promotional products company — using your invoices as collateral.

Does my promotional business qualify?

If your company works with creditworthy clients and has well-written purchase orders, you will most likely qualify for these two solutions. Additionally, your company should have good invoicing practices and your receivables should not be encumbered by liens.

Combining both solutions

Most promotional product companies that use PO funding also use a receivables factoring line. In most cases, they finance the purchase order at the start of the transaction and refinance it with a receivables factoring line when they send an invoice to the client. Since factoring has a lower price than PO funding, combining these solutions often lowers the total transaction cost.

Get more information

We can provide you with a competitive factoring quote. We offer high advances at low rates. For more information, please call (877) 300 3258.