FMCG finance: funding the gap between production and payment
For a consumer brand, cash is spent long before it comes back. Ingredients and packaging are bought, the co-manufacturer runs and invoices, stock sits in a warehouse, then it ships to a retailer who pays 60 to 90 days later, net of whatever deductions have been applied. Add it up and a pound of sales can easily be tied up for four months or more.
That is why a successful brand can grow quickly and still feel permanently short of cash. A fixed overdraft set on last year's accounts does not grow when a new retailer comes on board. The funding has to move with the debtor book and the orders you are shipping.
Invoice discounting against major grocers and retailers
Invoice discounting is the starting point for most consumer brands selling into retail. You invoice the retailer as normal, and the lender advances up to 90% of eligible invoices, with funds within 24 hours of invoicing. The facility is confidential, so your customers continue to pay you and do not know a lender is involved.
Major grocers and retailers are strong debtors, so lenders are comfortable funding them. What sets the size of the facility is how much of each invoice is actually collected and how concentrated the book is. Most lenders limit the share of the book that can sit with any one customer, often to between 25% and 50%, but strong retail names can justify a higher limit if the case is made properly.
Understanding dilution
Dilution covers everything that reduces what a retailer pays against an invoice: promotional funding, retrospective discounts, listing fees, pricing disputes, shortages and chargebacks. Lenders measure it over 12 months and reduce the advance rate or reserve against it. A brand that reconciles deductions monthly, and can show which are agreed trade spend and which are disputes, typically gets a better facility than one with a pile of unexplained short payments.
Credit insurance
Credit insurance protects you if a customer fails to pay. It matters most with wholesalers, smaller retailers and export customers, and some lenders will offer a higher advance or a wider concentration limit where the book is insured.
How to fund a new supermarket or national retail listing
A new listing usually needs three things funded at once: the first production run, the retailer debtor that follows, and the marketing that drives rate of sale. Purchase order or supply chain finance, a separate facility at up to 100% of supplier cost, pays the co-manufacturer against a confirmed retailer order. Once the goods are delivered and invoiced, the invoice moves into the discounting or ABL facility, which repays the purchase order line. A term loan, often under the Growth Guarantee Scheme at up to £2m per business group, can fund launch promotions and listing fees over a few years rather than out of working capital.
Lenders will want the listing letter or purchase orders, the agreed terms and promotional plan, and evidence of how similar products have performed. A brand with a track record of holding listings, growing distribution and repeat orders is far easier to fund than one relying on a single big win.
Trade finance for ingredients, packaging and finished goods
Many brands buy key ingredients, glass, cans or printed packaging from overseas. Trade finance pays the supplier on shipment, at up to 100% of supplier cost, and gives you up to 180 days to repay, which bridges the time it takes to produce, ship and collect from the retailer. It can also include currency hedging to fix the cost of goods. It is a separate facility from any ABL, though the two are often arranged together.
What makes a consumer brand fundable
None of this needs to be perfect before we speak. We help you build the dilution and concentration analysis, write a credit paper that explains your retailer relationships, and take it to lenders on our panel who fund FMCG brands every week.
- Monthly management accounts and a clean aged debtor report
- Deductions reconciled monthly against promotional agreements
- Supplier agreements and trading terms on file for each retailer
- A clear view of gross margin after trade spend
- A cash flow forecast that shows the impact of each new listing
- More than one route to manufacture for core products, or a plan for it
When asset based lending beats a standalone invoice facility
Once a brand needs £2m or more, a standalone invoice discounting line often leaves value on the table. Asset based lending is one revolving credit facility with a single borrowing base: receivables at up to 90% of eligible debtors, finished stock at up to 90% of its net orderly liquidation value set by independent appraisal, and any owned plant at up to 85% of NOLV or property at up to 80% of market value as term loans inside the facility. ABL runs from £2m to £120m, priced from 2% over Bank Rate on the receivables line, on 3 to 5 year committed terms. Long-life ambient stock values well; chilled, short-dated or promotional stock is valued cautiously, and stock close to its use-by date is usually excluded.
ABL also handles seasonality well. A brand with a big Christmas gifting range or a summer drinks peak sees stock and debtors rise together before the season, and the borrowing base rises with them. Once the season has sold through and retailers have paid, it falls back again, so you pay only for what you draw. We model the borrowing base month by month in the cash flow forecast so the peak headroom is clear before you commit to a facility.
Acquisitions, buyouts and bringing production in-house
We also advise on transactions for consumer brands: buying a complementary brand, acquiring a co-manufacturer to secure supply, a management buyout or a recapitalisation. We run the debt process end to end, from the information memorandum and lender process to term sheets and completion. Senior or unitranche debt of up to 5x EBITDA can sit alongside an ABL on the enlarged group's receivables and stock.
Funding growth through wholesalers, export and new channels
Not every brand grows through the major grocers alone. Wholesalers, convenience groups, foodservice, pharmacy chains and export distributors all bring their own terms and risks. Smaller or overseas customers are where credit insurance earns its keep, and where lenders will want to see credit limits and payment history customer by customer. Export invoices can often be funded alongside the UK book, and trade finance can cover the stock shipped to overseas partners.
If you also sell direct to consumers or through marketplaces, those sales do not create invoices, so they sit outside an invoice facility. The stock behind the online channel is funded on a revenue-based stock facility, sized on monthly online revenue and repaid from sales as the stock sells. The aim is one structure that covers every route to market, rather than a different provider for each.