By Mashum Mollah
A wholesale distribution business is the backbone of the retail industry and a crucial link between manufacturers and retailers without which end consumers would not have access to their products.
Distribution companies need large amounts of working capital to thrive and grow and a steady cash flow is not always readily available given the long payment terms that are a norm in this industry. This is where factoring companies come in. For a small fee—often a percentage of the invoice value—they take over your AR invoices, pay you upfront cash, and then go on to collect pending payments from your clients.
Factors retain a small portion of the invoice value until your client pays them in full. Once payment is received, they release the remaining amount to you minus the factoring fee.
Here is how invoice factoring can benefit your wholesale/distribution business regardless of its size, scale or age.
Steady and reliable cash advance to buy and distribute inventory
When you choose to sell your accounts receivables to a factoring company, you gain access to instant funds against up to 95% of your invoice face value. This allows you to bypass the long credit periods extended to your clients and receive funding for your business consistently and conveniently.
Cash inflow is an important component of a robust and undefeatable supply chain, so more and more distribution companies are now looking at factoring as a safe and convenient financial tool to keep their working capital in order. The approval process is simple and convenient and is not affected by your credit rating or the age of your business.
Ability to work large volumes
Restricted cash flow and waiting for B2B clients to process payments can greatly hamper your ability to take on new orders and purchase large volumes. Factoring your unpaid invoices empowers you to explore new opportunities and take risks, as you have the assurance of ready cash that you can use to pay manufacturers when you pick up large orders.
For a wholesale distributorship that’s looking to expand and establish itself as an industry leader, dealing in large volumes is a marker of reliability and success, and factoring helps make it possible by resolving your funding woes.
Access to funding to meet unexpected costs
The wholesale distribution industry is dependent on a number of other supporting industries, such as transportation, fuel and gas, and the service industry. Any unexpected market changes can drive up your business costs and leave you scrambling for cash when you need it most. For instance, rising fuel prices, equipment breakdown, an old customer pulling out, worker strike—any of these can trigger panic mode and create a contingency that requires urgent cash.
If you’re a factoring broker or aspire to become one, sign up for a startup co-broker program with a factoring company that has the experience and the resources to offer you a custom-made plan that will help you succeed and establish yourself as a preferred and trusted factoring broker in distribution.
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