Business Loans For Product Distribution Companies
Posted on March 26, 2014 in Asset Based Finance
Product distribution companies have several critical financial needs that have to be met on a regular basis. Without a strong cash flow, distributors will find themselves digging a deeper and deeper financial hole that will become more difficult to get out of. While every company is sensitive to its own funding needs, distribution companies have several important facets of their business to monitor that could collapse without a constant source of funding.
One of the challenges that every product distributor faces is thin profit margins. A distributor sells at wholesale after buying product directly from a manufacturer. Wholesale prices are not loaded with profit, as any distributor will tell you. That means that every distributor spends a great deal of time trying to guard the profit margin against erosion.
Business loans carry with them extra costs that many distribution companies cannot absorb. If a distributor is working with a four or five percent gross profit margin, then adding borrowed money and its associated interest and finance charges is not going to work. In order to generate a profit and operate efficiently, a distributor needs to maintain a healthy cash flow.
Distributors and their manufacturers have a very dynamic relationship. The manufacturer needs the distributor in order to get product into the retail marketplace, but most manufacturers are not willing to make significant investments in a distributor's ongoing operations. For example, a manufacturer will offer cooperative marketing funds to help a distributor advertise in a powerful industry publication, but the manufacturer will still charge the distributor a restock fee for returning product that does not sell.
Many distributors are forced to borrow money to take part in the more important trade shows and industry seminars that happen all over the world. While these are considered critical to the business success of a distributor, they are not the kinds of costs that a manufacturer is going to finance.
The Needs Of Retailers
In order to compete in the marketplace, a distributor has to offer the kinds of products and services that retailers require. In the technology field, distributors often take on the role of product assembly and software support for retailers who are willing to pay for the service.
The sensitive part of the relationship between a distributor and a retailer is the financial element. Distributors generally carry a large roster of retail clients who all have some sort of credit terms with the distributor. There is a portion of the retail world that purchase product in cash, but the larger retail customers all rely on their credit from distributors to survive.
When retail sales are slow, then retailers tend to make their payments late to distributors. To fill in the financial gaps left behind by past due invoices to retail clients, distributors are often forced to borrow money to meet ongoing operational needs. The distributor is also forced to limit how much product it will ship to a retail client who is past due on his payments. The problem is that every retail client has distribution options, and that leaves the distributor that is waiting for payment holding the financial bag.
The cost for maintaining warehouse services, which all distributors must bear, comes out of the distributor's profit. When business loans are used to finance ongoing operations, then that limits profits and put a crimp on the distributor's ability to maintain a productive warehouse.
Each and every process in a distributor's warehouse is examined for maximum efficiency and rated for productivity. A major part of a distributor's business model is keeping costs down in each warehouse. Revenue centers, such as product assembly and customer support, are always looked on with favor in the distribution world. Anything that a distributor can do to keep costs down and prevent the need for taking out more bank funding is done as frequently as possible.
The Burden Of Past Due Invoices
The distributor business model only works if the company is experiencing a positive cash flow. The need for business loans is an artificial and inefficient way to boost cash flow. The only real way for a distributor to make a profit is to be able to collect on the outstanding invoices that it generates on a regular basis.
The burden of past due invoices for distributors is heavy. The companies that work in the distributor industry have some of the most stringent customer credit policies in the corporate world. But even with all of that a distributor can do to limit how much bank borrowing it does, it will always have to face the possibility of compounding interest and long-term debt as long as past due invoices exist.
Receivable Based Lending Eliminates Past Due Invoices
The solution that every distributor needs to consider is receivables based lending. This is not the traditional kind of bank lending that distributors work to avoid. This is a form of funding that looks at your past due invoices as assets and puts those assets to work for you immediately.
1st Commercial Credit is an asset based lender that deals in receivables financing. We can advance you funds, directly to your company bank account, based on your outstanding invoices. We will advance you the face value of your invoices and help you to pay your obligations in cash instead of relying on bank borrowing.
A Receivable Based Line Of Credit Preserves Your Cash Flow
When you work with 1st Commercial Credit, you are taking on a financial partner that can help you put cash into your bank account regardless of your company's credit history. We understand just how vital your profit margin is, and we want to do our part to preserving your cash flow with a receivables based line of credit.
We don't have any per month or per invoice minimums, we don't audit your financial statements and we have no set-up or facility fees. This is ideal solution for a distributor that is doing its best to maintain profit will still keeping up on its financial obligations.
Let 1st Commercial Credit show you how accounts receivables funding can turn your past due invoices into the cash flow that you need. We can work with your company if you have bad credit, good credit or no credit at all. We have the expertise and experience to work with the volume of invoiced customers that a distributor handles.
If you are having problems paying your manufacturers and keeping your good paying clients happy, then you need contact us right away. Our online application process is simple and we can get you the cash you need in as little as 24 hours with an approved account. 1st Commercial Credit is the way that a distributor can stay competitive and maintain cash flow at the same time.