Distributors Invoice Factoring: A Way to Solve Cash Flow Problems for Distributors and Wholesalers

Invoice factoring can get you the revenues that are tied up in your accounts receivables without forcing your clients to pay up any sooner than the agreed terms.
Invoice factoring can get you the revenues that are tied up in your accounts receivables without forcing your clients to pay up any sooner than the agreed terms.

If you have a wholesale or product distribution business, then you probably have heard of distributors invoice factoring. Yes, it may sound familiar, but truth be told, not a lot of people truly understand how it works.

 

Product wholesalers and distributors, much like any other business, need to make sure that their revenues are being managed wisely; otherwise they might face some cash flow shortage. Looking at the expenditures side, you have suppliers that need to be paid up. If you’ve already established yourself as a worthy client to your suppliers, then you can probably ask them for some payment terms.

 

However, at some point in time, (and normally this happens to budding businesses) you may exceed your credit limit, therefore forcing you to make upfront payments. On the revenues side of the fence, you have clients who will also negotiate for credit payments from you. And if they are indeed credit-worthy and you want to keep their business, then you will need to agree to some payment terms.

Scenarios like these make cash flow management a bit tricky and if your wholesaling/distribution company starts to grow rapidly, then you might face the possibility of running out of funds. If you won’t take immediate action, this can lead your business into a downward spiral.

 

Fix Your Money Woes by Factoring Your Invoices

 

The financial dilemma mentioned above can be addressed by going for distributors invoice factoring. This move can get you the revenues that are tied up in your accounts receivables without forcing your clients to pay up any sooner than the agreed terms. Rather, you do the financing with the help of a third party lender. Lenders will pay you in advance whilst they hold your invoices until your clients pay up. Once your clients have paid their dues, the lender gets their fees with the corresponding interests, then settles the transaction.

 

Get Your Funding By Using Your Clients as Leverage

 

The credit strength of your clients can be put into good use with distributors invoice factoring. But sometimes invoice factoring alone will not suffice. If you are a small business that landed a big deal but lack the fund to complete the transaction, the next best course of action is to get a purchase order loan. In PO financing, lenders check your client’s credit records, and if they pass, they’ll give you the loan. Once you’re able to deliver your products, go into invoice factoring to release the revenues tied with it. These two solutions, when combined, can give you a supply of cash that can keep your business operations running. So if you know that your client has good credit terms, use that as your leverage in securing your loans.

 

Will You Qualify for Funding?
For this to happen, you need to ensure that your invoices are from credit-worthy clients. You also need to make sure that you have lien-free invoices, a good management team running the show and follow good invoicing practices. Often you don’t need any other hard collateral to be approved for funding; your invoices should suffice if you are applying for distributors invoice factoring.

 

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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