Terry cloth is covered in raised loops. A file built for a polo shirt lays its stitches straight onto those loops, so the thread pushes down between them, the edges look ragged and loops poke up through fills and lettering.
A towel file plans for the pile instead of fighting it. A knockdown layer flattens the loops where the design will sit, firmer underlay builds a stable base on top, and density and satin widths are chosen so the top stitches cover rather than sink.
The same logo can sew well on a corporate uniform and badly on a spa towel. If you supply both, order a separate towel version of the file.
Loops poking through a design are rarely a machine problem. They are usually a file built for flat fabric. Read more on underlay and fabric in our puckering and underlay guide.