Pre-Shipment Financing for CPG Brands: 5 Options Mapped

A CPG brand wins a Walmart order, then searches “pre-shipment financing” and gets buried in conflicting definitions. PO financing articles call themselves “pre-shipment finance.” Factoring companies describe themselves as “pre-shipment lenders,” even though factoring is definitionally post-shipment. Trade finance letters of credit are technically pre-shipment but built for import and export rather than domestic retail. And a generic working capital line drawn before a shipment gets filed under the same label.

Pre-shipment financing is any capital advanced before goods ship to the retailer. That single definition covers five distinct products, each with its own documentation chain, cost, and decision trigger. According to the ICC Academy, pre-shipment finance (also called packing credit) funds raw materials, labor, factory costs, and other pre-shipment expenses before an order is fulfilled. Purchase order financing, manufacturer direct payment, letters of credit, working capital lines, and blended facilities all live inside that bucket.

The confusion costs real money. A brand that applies for the wrong structure gets rejected, or accepts terms that miss its production timeline. This guide defines the boundary, then maps the five options so you can match the structure to your order. For the full mechanics of one option, see how purchase order financing works.

Pre-Shipment vs. Post-Shipment: Where the Line Is

The boundary is the shipment itself. Pre-shipment financing is any capital advanced before goods leave your control and reach the retailer’s distribution center. Post-shipment financing is any capital advanced after delivery, against an approved invoice. Factoring, invoice discounting, and early-payment programs are post-shipment by definition.

Three differences flow from that line, and they drive everything else.

1. Risk profile. Pre-shipment lenders take on manufacturer risk (will production finish on time and to spec?) on top of buyer risk. Post-shipment lenders only face buyer risk, because the goods are already delivered.
2. Collateral. Pre-shipment collateral is evidence of buyer intent (a purchase order, buyer email, buy plan, or producer invoice), which is a promise to pay. Post-shipment collateral is a completed invoice, which is an earned receivable.
3. Documentation. The document chains differ completely. A pre-shipment lender wants production evidence. A post-shipment lender wants proof of delivery.

This is why the label matters. A factoring company that advertises “pre-shipment financing” is either describing a PO financing product or using the term loosely. Either way, ask for the documentation chain before you assume the product fits. The Global Supply Chain Finance Forum (a joint initiative of ICC, BAFT, and ITFA) defines pre-shipment finance as a loan provided to a seller for the sourcing, manufacture, or conversion of raw materials into finished goods before delivery to a buyer. That places it at the opposite end of the timeline from anything invoice-based.

Option 1: Purchase Order Financing

Purchase order financing is generally the most widely used pre-shipment structure for CPG brands selling into big-box retail. The lender reviews and approves an upcoming retailer order, then advances funds directly to your manufacturer or co-packer. You never touch the cash. The manufacturer produces and ships to the retailer’s DC, and the lender is repaid from the retailer’s invoice payment.

The collateral is evidence of the buyer’s commitment (a purchase order, buyer email, buy plan, or producer invoice), backed by the retailer’s creditworthiness rather than your company’s balance sheet alone. That structure makes PO financing accessible to earlier-stage brands that a bank would decline.

Documentation chain:

Decision trigger: Use PO financing when you have a creditworthy big-box buyer and enough gross margin to absorb financing cost (in Bridge’s experience, lenders generally look for healthy double-digit margins), and no existing facility with the capacity to fund the production run. In Bridge’s experience funding Walmart suppliers, complete documentation can move to terms within a few business days, though timing is subject to underwriting. It fits brands fulfilling a large order without enough operating cash to produce it. For a structure comparison, see working capital options for retail suppliers.

Option 2: Manufacturer Direct Payment Facilities

Manufacturer direct payment is a variation on PO financing. Rather than advancing to the brand, the lender pays the manufacturer directly once the order is approved. The brand never handles the capital at any point.

That design reduces the risk of capital diversion, where a brand spends an advance on something other than production. Because diversion risk drops, some lenders advance a higher percentage of manufacturer cost, in some cases approaching the full production amount.

Documentation chain:

Decision trigger: Use a direct payment facility when your manufacturer is willing to sign a tripartite agreement and you want maximum coverage of production cost.

The tripartite step adds time, so this fits planned production runs rather than last-minute orders. Expect it to take longer to fund than a standard PO advance because the three-party agreement has to be negotiated first.

Option 3: Letters of Credit

Letters of credit are the traditional trade finance tool for CPG brands manufacturing overseas. A bank issues a letter of credit (LC) on behalf of the brand, guaranteeing payment to the manufacturer once shipment documents are presented and verified. The manufacturer is funded at shipment, which is still before the retailer receives or pays for the goods.

The LC governs international transactions where neither party knows the other well. The bank stands between them and pays only against a complying presentation of documents. The ICC Academy notes that red clause and green clause letters of credit can authorize a pre-shipment advance to the manufacturer before goods ship.

Documentation chain:

Cost and speed: According to Investopedia, banks typically charge LC fees as a percentage of the credit amount (often around 0.75%), plus confirmation fees, document-handling charges, and interest on any funded period. Establishing an LC usually takes longer than a domestic PO advance because the issuing bank underwrites and drafts the credit.

Decision trigger: Use an LC when you manufacture in Asia or Latin America and already hold a bank relationship that can issue documentary credit. It fits import production, not domestic co-packing. If your manufacturer is in the United States, PO financing or direct payment will move faster.

Option 4: Working Capital Lines Drawn Pre-Shipment

A revolving working capital line (a bank line or asset-based lending facility) can be drawn before shipment to fund production. It works, but it is not purpose-built for the job.

Unlike PO financing, a working capital line does not pledge a specific order as collateral. The borrowing base is your overall assets, typically accounts receivable plus inventory. That makes the line more flexible and cheaper if it already exists. It also makes the line inaccessible to brands that have not yet built one. A first-time supplier cannot draw on a facility it does not have.

Documentation chain:

Decision trigger: Use a working capital line when you are an established brand with an existing facility and available capacity, and you need to fund a production run ahead of a large order. ABL facilities generally suit companies with enough revenue and asset base to support a borrowing base, so they tend to fit later-stage suppliers rather than first-time vendors. If the line is tapped out or you do not have one, a transaction-based structure fits better. See how working capital loans work for the underwriting basics.

Option 5: Blended Pre/Post Facilities

A blended facility covers both sides of the shipment line inside a single agreement. The pre-shipment portion advances against the order to fund production. After delivery, the same facility converts to an invoice factoring line that advances against the receivable.

The appeal is administrative. One agreement, one lender, one reporting relationship. No need to manage a PO financing lender and a separate factoring partner. The limitation is supply. In practice, few lenders offer a true blended structure, because most specialize in pre-shipment or post-shipment, not both.

Documentation chain:

Decision trigger: Use a blended facility when you want one relationship covering production through collection, and you can find a lender that genuinely offers both phases. If you only need to solve the production gap, standalone PO financing is simpler to source.

Documentation Master Checklist for Pre-Shipment Applications

Most pre-shipment applications draw from the same core document set, with a few option-specific additions. Assemble these before you request terms, and underwriting moves faster.

Required for every option:

• Evidence of buyer commitment (purchase order, buyer email, buy plan, or producer invoice)
• Manufacturer quote or proforma invoice
• Business formation documents
• 3 months of bank statements
• Buyer contact information for creditworthiness confirmation
• Freight plan and carrier booking

Option-specific additions:

• Tripartite agreement: manufacturer direct payment only
• Bank LC application and shipping documents: international manufacturing only
• Borrowing-base certificate and AR/inventory reporting: working capital line only

The pattern is consistent: a pre-shipment lender wants proof the buyer is committed (whether that is a PO, buyer email, buy plan, or producer invoice), proof the manufacturer can produce, and a clear path to repayment from the retailer’s payment.

Frequently Asked Questions

Is purchase order financing the same as pre-shipment financing?

No. Pre-shipment financing is the category; PO financing is one product inside it. Manufacturer direct payment, letters of credit, working capital lines, and blended facilities are also pre-shipment structures. PO financing is generally the most common one for CPG brands selling into big-box retail.

Can a factoring company offer pre-shipment financing?

Factoring is post-shipment by definition, because it advances against a completed invoice. A factoring company that markets “pre-shipment financing” is usually describing a separate PO financing product or a blended facility. Ask for the documentation chain: if the trigger is an invoice, it is post-shipment.

What is the difference between a working capital line and PO financing for production?

A working capital line draws against your overall assets and requires an existing facility, so newer brands cannot access it. PO financing ties to a specific order and underwrites the retailer’s credit, which makes it reachable for earlier-stage suppliers. Established brands with open capacity often draw the line; brands without one use PO financing.

When does a CPG brand need a letter of credit instead of PO financing?

Choose a letter of credit when you manufacture overseas and your supplier requires the payment security a bank guarantee provides. For domestic co-packing, PO financing or manufacturer direct payment funds faster and avoids LC document handling.

Match the Structure to Your Order

Pre-shipment financing is not one product. It is five, and the right one depends on where you manufacture, what facilities you already hold, and how your buyer pays. Guessing wrong costs you a rejection or a timeline mismatch. The faster path is to see which structures your specific situation qualifies for, side by side.

Bridge works with CPG brands and retail suppliers to structure pre-shipment capital that fits the order in front of you. If you have a retailer PO, buyer email, buy plan, or producer invoice and need production funded, we can walk you through your options. Request financing.