Distributor Financing – Benefits of Factoring Invoices
Invoice factoring allows distributors to free up working capital that would otherwise be tied up in accounts receivable invoices. Instead of waiting for customers to pay, they can receive an advance on their customer’s invoice on the same day it is generated, when they factor it with an invoice factoring company.
Capital in hand, distributors are then free to put the money back into growth initiatives; such as:
- Reinvesting more quickly in the inventory needed to take on new business or attract more customers
- Adding new product lines to expand their customer base
- Making large inventory purchases to satisfy orders of larger clients
- Taking advantage of volume discounts or negotiating better payment terms with their suppliers – and more
Working capital freed up by invoice factoring can also be used to improve cash flow needed for operational expenses, equipment purchases and repairs, expansion and other capital expenditures.
How the Distributor Factoring Process Works
Invoices factored are typically funded within 1-2 business days (or even faster) – up to 95% of the face value of the invoice, with low to no holdbacks. If you were billing a customer in the amount of $6,500 but wanted to access the funds without waiting weeks – or months – for your customer to pay.
Assuming a factoring fee of 5%, and an advance rate of 95%, here’s how it would work:
|Day 1 –
||Generate $6,500 client invoice and factor it
| – 1-2 Days
||Your company receives 95% advance of $6,175 by wire transfer or ACH
||Factoring company earns 5% factoring fee of $325
||Factoring company waits on the customer payment while you stay focused on your distribution business
Distributor Financing Solutions that Expedite Cash Flow
Cash flow is critical to every type of business, including U.S. distributors who make it possible for all kinds of goods to get to retail stores, e-commerce retailers and other points of sale.
Similar to other businesses that wait for their customers to pay via accounts receivable invoices, distributors can also experience cash flow challenges that have the ability to derail their growth.
Distributors often extend payment terms to their own customers of 30, 60, 90 days (or even longer). However, these same distributors may be required to pay manufacturers up front, and must bear the cost of transporting goods in advance of customer payment. In many cases distributors are required to pay their suppliers right away, rather than on terms.
Speeding up cash flow to keep pace with expenses and provide working capital for growth makes distributor factoring an ideal supply chain finance tool.