Funding for wholesale and distribution
Wholesale funding that fits thin margins and net terms
The cash cycle
Busy and slow months
Seasonality follows what you distribute and who you sell to, and it varies by location, so a holiday-goods distributor and a food-service supplier run very different years.
How money moves
Where the cash gets stuck
What owners use funding for
- Fill a large order from a new retail customer
- Pay a supplier deposit or take an early-pay discount
- Carry receivables from customers on net terms
- Stock up ahead of a seasonal peak or price increase
- Buy a truck, forklift or racking
- Add a product line or a new territory
What fits
Funding that suits wholesale and distribution
Purchase order financing
When a creditworthy customer orders more than you can buy for, PO financing pays your supplier directly and is repaid when the customer pays.
Invoice factoring
Factoring turns net-terms invoices into cash within days, which frees money for the next order.
Asset-based lending
An asset-based line borrows against receivables and inventory together and grows with your sales, usually at a lower cost than short-term funding.
Underwriting
What funders check in wholesale and distribution
- Gross margin as well as revenue
- Customer concentration and credit quality
- Receivables aging and deduction history
- Inventory turns and aged stock
- Supplier agreements and existing UCC-1 filings
Watch out for
Aged stock that won't turn
Slow-moving inventory ties up cash and can count for less, or nothing, in an asset-based borrowing base. Clear aged stock before you plan to borrow against it.
Retailer deductions and chargebacks
Big retailers can deduct for shortages, late shipments or labeling errors, so invoices pay short. Factors may charge those back to you, and a funding payment won't adjust.
Supplier liens on your stock
Some suppliers hold a security interest in the goods they sell you until they're paid. A new lender's lien can conflict, so share your supplier agreements early.
In depth
Margin is the number that matters
A distributor can move a lot of product and keep a thin slice of it. That's normal, but it changes the math on funding: a fee that looks small against the order can take a big share of what you'll actually earn.
Run that math before you accept a large order, and push for shorter cycles: faster supplier shipping, quicker invoicing and customers who pay on time. Openbook Capital shows each offer's total payback, cost in dollars, payment schedule and estimated APR side by side, so you can price the funding into the deal. Better supplier terms can be worth more than a lower unit price.
PO funding, factoring or an asset-based line
Purchase order financing pays your supplier against a confirmed order from a creditworthy customer. Once the goods ship and you invoice, invoice factoring can take over, and some deals pass from 1 to the other: the factor pays off the PO funder, then collects from your customer.
An asset-based line is the steadier option for an established distributor. It lends against receivables and inventory through a borrowing base, usually at a lower cost than deal-by-deal funding, but it comes with reporting and field exams. For occasional gaps, a line of credit may be enough.
Whichever you use, line it up with your supplier terms. If a supplier gives you 30 days and your customer pays in 45, you only need to fund the 15-day difference, not the whole cycle.
Your customers' credit is your credit
Factors and asset-based lenders look hard at who owes you money. Invoices to large, creditworthy customers can be funded on better terms, while a customer who pays late or disputes often can be left out of the funding altogether. Checking a new customer's credit before you ship a big first order protects both your cash and your funding.
Concentration matters too. If 1 customer is most of your receivables, a factor may cap how much it will advance against that customer, and losing the account would hit both your sales and your funding. Keep an aging report by customer, and note the deductions each one takes, since that's the first thing a funder will ask for.
Some distributors insure their receivables against a customer's failure, and some lenders will advance more against insured invoices. Ask about both if a few large accounts carry your business.
Questions
Wholesale and distribution owners ask
Can I use PO financing if I have thin margins?
It works best when gross margin comfortably exceeds the funding cost. Fees that run by the month eat into slow orders, so check the cycle length before you commit.
What happens if my customer doesn't pay a factored invoice?
With recourse factoring, you buy it back or replace it. Non-recourse factoring covers some credit losses, usually only if the customer becomes insolvent.
Can a new distributor get funding?
Openbook can usually help from 6 months in business with $10,000+ in average monthly deposits. PO financing and factoring lean heavily on your customers' credit, which can help a younger business.
Is an asset-based line only for big companies?
It suits businesses with meaningful receivables and inventory, and lenders set minimum line sizes. Smaller distributors often start with factoring or a line of credit.
Should I borrow to take a supplier's early-pay discount?
Only if the funding costs less than the discount is worth. Terms of 2/10 net 30 work out to about 37% a year, simple annualized, so compare the estimated APR of any funding against that figure.
One application, many funders
Know the cost. Then decide
Tell us what you need in about 3 minutes. We compare funders that fit and show every offer with its total payback, dollar cost, payment and estimated APR.
- About 3 minutes. No SSN and no bank login to start, so checking doesn't affect your credit.
- 4 months of bank statements. A specialist contacts you within 1 business day and asks for them through a secure link.
- You approve every funder before your file goes out. No cost to apply, and no obligation to accept.