For consumer packaged goods (CPG) brands, managing cash flow is a constant balancing act. You’re scaling production, fulfilling orders, and trying to stay stocked. Meanwhile, retailers and distributors often take 30, 60, or even 90 days to pay. That delay can lead to serious cash flow strains, especially for fast-growing brands.
To solve this, many businesses turn to accounts receivable (AR) factoring. But is it the right solution for your brand?
Let’s break it down and compare factoring to an alternative: inventory funding with Kickfurther.
What is AR Factoring?
Accounts receivable factoring (also known as invoice factoring) is a type of financing where you sell your outstanding invoices to a factoring company at a discount in exchange for immediate cash.
Instead of waiting 60+ days for a retailer to pay, you get most of the invoice value upfront. The factoring company then collects payment directly from your customer when the invoice is due.
How it works:
- You deliver goods and issue an invoice.
- You sell that invoice to a factoring company at a discount (typically 1–5% monthly).
- The factoring company advances 70–90% of the invoice value.
- When your customer pays, you receive the remaining balance minus fees.
Benefits of AR Factoring for CPG Brands
1. Immediate Access to Cash
One of the biggest challenges for CPG brands is delayed payments from retailers and distributors. AR factoring helps bridge the gap by providing immediate access to cash, allowing you to cover operational expenses like payroll, inventory, and marketing without waiting for customer payments.
2. Growth Opportunities
With steady cash flow, you can scale production, invest in new product lines, or fulfill larger orders without worrying about financial constraints. This is especially valuable for brands looking to expand into major retailers.
3. Easier Approval Compared to Loans
Small and growing CPG brands often struggle to qualify for traditional bank loans due to limited credit history or financials. Factoring companies focus more on your customers’ creditworthiness rather than yours, making it a more accessible financing option.
4. Outsourced Collections
Some factoring companies handle collections, freeing up time and resources for your team. This can be especially helpful for brands that want to focus on sales and operations rather than chasing down payments.
Cons of AR Factoring
It’s Expensive
Factoring fees typically range from 1% to 5% per month. Over time, this adds up and eats into your margins—especially if your invoices take 60+ days to clear.
It May Affect Customer Perception
Your retail partners may notice that a third party is handling collections. If the factoring company is aggressive, it could create friction with key accounts.
It’s Not a Long-Term Fix
Factoring is a short-term cash flow tool. As your business grows, the high costs can become unsustainable compared to other funding options.
You Lose Control Over Collections
If the factoring company collects from your customers, you may have little say in how that interaction is handled.
When Does AR Factoring Make Sense for a CPG Brand?
AR factoring can be a great option in the following scenarios:
- Your business has strong, creditworthy customers. Factoring companies base their decisions on your customers’ payment reliability, so if you sell to well-established retailers, you’re more likely to get favorable terms.
- You need quick access to cash for growth. If cash flow is the only thing holding you back from fulfilling large orders or expanding distribution, factoring can provide the funds you need.
- Your profit margins can absorb factoring fees. If your margins are high enough to cover factoring costs, the speed of cash flow can outweigh the expense.
- You have difficulty securing traditional loans. If banks aren’t willing to extend credit or you want to avoid debt, factoring can be an alternative financing tool.
Want to See the Real Cost?
Use our free AR & PO Financing Calculator to compare what factoring would cost you vs. inventory financing.
Inventory Financing: A Smarter Alternative
Inventory financing lets you get funding before you invoice—so you’re not constantly chasing receivables. It’s especially useful if you need to pay suppliers upfront long before you get paid.
Here’s how it works:
- A financing partner covers the cost of your inventory production.
- Your finished goods serve as collateral.
- In some cases, like with Kickfurther, you don’t pay anything back until your inventory sells.
This model aligns better with natural sales cycles and reduces the pressure on working capital.
Inventory Financing with Kickfurther
For physical product companies (CPG companies), or those producing shelf-stable consumables, a growth funding option that provides larger amounts than traditional financing and at faster speeds is inventory funding with Kickfurther.
Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you control. Kickfurther’s unique funding platform can fund your entire order(s) each time you need more inventory, so you can put your capital on hand to work growing your business without adding debt or giving up equity.
Why Kickfurther?
- No immediate repayments: You don’t pay back until your product sells and you control your repayment schedule.
- Non-dilutive: Kickfurther doesn’t take your equity.
- Not a debt: Kickfurther is not a loan, so it does not put debt on your books, which can sometimes further constrain your access to additional capital providers and diminish your valuation if you approach venture capital firms.
- Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
Interested in inventory funding through Kickfurther? See how much capital you can access by creating an account today at Kickfurther.com!
Final Thoughts
AR factoring can be a helpful tool for CPG brands that need to unlock cash stuck in unpaid invoices. But it’s not the only option and it may not be the best one for growth-focused brands.
If you’re looking for a financing solution that scales with you, protects your margins, and aligns with your sales cycles, inventory funding with Kickfurther may be the better fit.
Interested in seeing how much capital you can access?
