How Factoring for Wholesalers Work

If you’re a wholesaler, then you are probably quite aware of the need for ready cash for your business. Unfortunately, lenders make it difficult for you to have the cash you need. Small banks approve only 47.9 percent of all small business loans so that means you don’t have an even chance of getting your loan with a small bank. With bigger banks, the approval rate is just 19.4 percent, and that’s an improvement compared to how tight-fisted these guys were just a few years before. In fact, it’s sort of a record for big banks.

Factoring for Wholesalers

So if you need ready cash for your wholesale business—and most probably you do—you need an alternative to banks. There are some alternative means of getting a loan, but the interest rate can be brutal.

But factoring for wholesalers is an alternative that’s not actually a loan at all. It’s a cash advance on your accounts receivables. So let’s say a retailer owes you $100K, but the payment is due in 90 days. Of course, you really can’t wait that long since you have bills to pay, employees to support, and supplies to purchase. Fortunately, with factoring, you get an advance right away. You may get $80K in advance, the amount depending on your situation and your factoring company. The time it takes for you to get your money will also depend on the factoring company. Some may take a week, while others can get you your money in as quickly as 24 hours.

Then when the retailer pays the entire $100K to the factor, you get the rest of your money after the factor’s fees.

Factors Can Investigate New Customers for You

By definition, if you’re a wholesaler then your retailer customers probably form a large chunk of your business. These people as you may well know tend to pay late, and at times they may not pay at all. That’s because a lot of retail companies don’t really do well in the long term. Less than half of them—a whopping 47 percent—are still standing after 4 years. They can fold up at any time, and if they declare bankruptcy then good luck on getting your money from them.

This is especially true if your customers are grocery stores and restaurants. These are among the businesses with the worst rates of success after 5 years.

And here’s where factors can help. You see, factors don’t really care much about your own credit. They are more concerned about the credit rating of the people who owe you payment. So factors investigate these retailers to assess the likelihood of getting the payment from them.

So before you take on a new retailer customer, you can have a company specializing in factoring for wholesalers do the investigation for you. They may even already have a file on this retailer. You then can get the necessary info so you can make an informed decision as to whether you should do business with a particular retailer.

 

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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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