Key takeaways
- Net-60 with no deposit makes you the brand's bank — a $3M plant floats roughly $575K in receivables it never priced.
- 50% down on first runs and progress billing past week three are standard practice, not hardball.
- A payment term you won't enforce is a suggestion. Set the stop-ship trigger before the first late invoice.
Co-packing payment terms decide who's the bank: you or the brand. Sign net-60 with no deposit and you've agreed to buy the ingredients, run the product, and lend the finished goods to someone else's company for two months, interest-free. Bad pricing bleeds a plant slowly. Bad terms can kill it in a quarter.
The Cash Conversion Cycle Math Every Owner Should Run
Your cash conversion cycle is three numbers: days your cash sits in inventory, plus days it sits in receivables, minus days your suppliers float you. Manufacturing textbooks write it as DIO + DSO − DPO. Here's what it looks like on a real floor.
A 38-person sauce plant in Ohio takes a $150,000 turnkey PO. Ingredients and packaging land day 0 on net-30 supplier terms — call it $95,000 in materials. The run ships day 20. The invoice goes out net-60, and the brand actually pays day 75, because brands round net-60 up. The plant pays its suppliers day 30. So cash walks out the door on day 30 and comes back on day 75. That's 45 days of floating roughly $115,000 in materials and labor — on one PO.
Run three POs like that at once and you've got $300,000-plus outside the building before a dollar comes back. Most owners discover this number the day the line of credit gets tight, not the day they signed the terms that caused it.
Net-60 Is a Loan You Never Priced
Net 60 payment terms spread through manufacturing because retailers push them onto brands, and brands pass them straight to you. Here's what accepting them actually costs. A plant running $3M of annual throughput, all on net-60 with real payment around day 70, keeps about $575,000 parked in receivables permanently. Fund that on a line of credit at 10-12% and you're eating $57,000-$69,000 a year in interest — for the privilege of financing your customers.
You can follow every rule on how to price co-packing services and still lose the year to that math. Margin on paper isn't margin in the bank. If a brand insists on net-60, that's a price conversation: add the cost of the float to the toll fee, cap your exposure, and offer 2% off for payment in 10 days so the fast payers self-select.
Customer Deposits on First Runs: Standard, Not Rude
Customer deposits are normal in contract manufacturing, and first runs are exactly where they belong. A first run carries your worst risk: unproven product, unproven payer, and custom film or labels you can't resell if the brand disappears. The standard ask is 25-50% down. For an emerging brand on a first run, take 50% at PO and the balance before the truck leaves. For an established brand with references and a clean credit file, 25-30% is defensible.
Some brands will push back with "our last co-packer never asked for a deposit." Fine. Ask how that co-packer's doing. Deposits also pair with diligence — pull a credit report and vet the CPG brand before you take their business. The deposit protects one run; the vetting protects the next three years.
Progress Billing on Long Runs
Progress billing is standard in construction and aerospace, and contract manufacturing keeps forgetting it exists. Any run longer than three or four weeks, or bigger than about $100,000, shouldn't be one invoice at the end. Bill at milestones: 30% at PO, 30% when materials land, 30% at completion, 10% at shipment. A beverage plant on a six-week schedule that bills at materials receipt just covered its largest single cash outlay with the brand's money instead of the bank's.
Brands rarely fight this if you put it in the quote instead of the contract redline. It's not a concession you're asking for. It's how the job is priced.
Turnkey Runs: The Brand Funds the Ingredients
Turnkey means you're buying the materials, which means turnkey is where plants quietly become lenders. Three ways to hand that risk back:
- Ingredient prepayment. Invoice materials the day you place the supplier PO, due before the goods hit your dock. The brand's product, the brand's ingredients, the brand's cash.
- Convert to tolling. The brand buys and owns the materials; you charge for conversion. Smaller invoices, near-zero materials exposure.
- Pass-through at receipt, net-15. If you must carry the purchase, invoice materials separately from processing the day they arrive, on short terms.
One warning: prepayment fixes timing, not price. If tomato paste jumps 18% between PO and production, prepaid money doesn't cover the gap — that's the job of a price escalation clause for ingredient costs, and it belongs in the same agreement.
Late-Payment Teeth That Actually Bite
Every co-packing agreement says payment is due in X days. Almost none say what happens on day X+1, which is why nothing happens. Put four teeth in the contract.
Interest at 1.5% a month on past-due balances, where your state allows it. An automatic stop-ship: at 10 days past due, the next run doesn't get scheduled and finished goods don't leave the dock. A personal guarantee for brands under about $1M in revenue. And a per-customer credit limit — cap exposure at a number your plant could survive losing outright.
Finished goods in your warehouse are your strongest card. In many states a processor holding goods has lien rights until it's paid; confirm the specifics with your attorney, and write the right to withhold shipment into the agreement anyway.
Here's the uncomfortable part: none of these clauses hold if the brand knows you need them more than they need you. Terms are a pipeline problem before they're a legal problem. When you've got three qualified brands waiting for line time, the deposit conversation takes five minutes. That leverage is the whole reason we run outbound sales for co-packers — a full calendar is the best contract clause you'll never have to write.
Co-Packing Payment Terms Worth Writing Into Every Contract
| Situation | Terms that protect the plant |
|---|---|
| First run, emerging brand | 50% deposit at PO, balance before shipment |
| Repeat runs, clean payment history | 25% deposit, balance net 30 |
| Run over 3-4 weeks or $100K | Progress billing: 30/30/30/10 at PO, materials, completion, ship |
| Turnkey materials | Ingredients prepaid, or invoiced separately net-15 at receipt |
| Brand insists on net 60 | Price the float into the fee, cap exposure, offer 2%/10 early-pay |
| Any account, any size | 1.5% monthly late interest, stop-ship at 10 days past due |
None of this is exotic. It's the same discipline your suppliers already apply to you. The plants that last aren't the ones with the best margins on paper — they're the ones whose cash comes home before the next run starts.
Frequently asked questions
Q-01Should a co-packer require a deposit from a new brand?
Yes. A 25-50% deposit on first runs is standard across food and beverage contract manufacturing — 50% at PO with the balance due before shipment is common for emerging brands. It covers the custom packaging and ingredients you can't resell if the brand walks or fails.
Q-02What are typical payment terms for co-packing?
The most common structure is a 25-50% deposit on new relationships with the balance due net 30 after shipment. Net 60 shows up when brands pass retailer terms downstream, but plants that accept it usually price the cost of the float into the toll fee and cap total exposure per customer.
Q-03Can a co-packer hold product if the customer doesn't pay?
In many states, a processor holding goods in its possession has lien rights until it's paid, and most co-packing agreements add an explicit right to withhold shipment on past-due accounts. Write the stop-ship trigger into the contract and confirm lien specifics with your attorney, since rules vary by state.
Written by
Murtaza Udaypurwala
Founder, Feed The Line · Director, DESENO Media Agency
Murtaza runs Feed The Line, the outbound revenue engine that fills co-packer lines with qualified CPG brands. He writes about capacity economics, MOQ math, and pipeline for food & beverage plant owners.
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