Accounts Receivables Loans Help Distributors In A Slow Economy
Posted on October 20, 2014 in Factoring
Product distributors have a very narrow fence to walk every day. These are the companies that are the liaisons between product manufacturers and retail outlets. In the product distribution model, it is usually the distributor that winds up making the least amount of profit. That means that a distributor requires a significant sales volume to stay in business. In most cases, the distributor's profit margin is at least half of the retailer's margin and significantly lower than the manufacturer's margin. To make money, the distributor needs to sell a lot of product on a regular basis.
When a company runs on a tight margin, cash flow becomes extremely important. When the economy is strong and consumers are buying products, a distributor is able to keep up with expenses and minimizes financial challenges. However, even in a good economy, financial challenges still exist. When that economy goes bad and consumers pull back on buying product, then the distributor starts to see a series of financial challenges that threaten to destabilize the business relationships that the distributor relies on the most.
A Slow Economy Strains Manufacturer Relationships
As any owner of a distribution business will tell, manufacturers usually like to ignore slow economic indicators. This means that the manufacturers will still put the same demands on their distributors, and expect the same sales volume, as they have in years past. It is not as bad as it sounds as most manufacturers have a reasonable minimum product requirement that distributors can reach. But that obligation gains weight when the economy takes a bad turn.
Manufacturers offer various purchasing deals to distributors that are almost always based on sales volume. Each tier comes with perks such as marketing funds, lower pricing and discounts on bulk shipping of product. A distributor comes to rely on those perks to conduct business and expand its advertising efforts. When a slow economy hits and the distributor is forced to pull back on sales, he stands the risk of losing his perks and having to readjust his business model. It can be frustrating for the distributor, and it can also be very devastating.
Logistics Are Affected By A Slow Down In Volume
Most distributors have agreements in place with their various shipping companies that give the distributors discounts on shipping. As long as the distributor meets a certain threshold of business, the shipping company will extend a discount that saves the distributor a great deal of money. Once again, losing this discount because a slow economy affects shipping volume can cause the distributor to re-adjust his business plan and devise new ways to save money.
The worst thing a distributor can do is raise shipping rates to help offset the loss of the discount, but that is what many companies are forced to do. Some customers do not notice the increase in shipping, but many customers do. This is especially true for customers that have been receiving the same kinds of shipments for very long periods of time. While everyone expects shipping costs to go up from time to time, it does not prevent customers from looking for a new distributor with better shipping rates.
A Slow Economy Does Not Have To Cause Financial Distress
For the most part, distributors who experience a slow down in sales due to a bad economy are still generating enough revenue to maintain their shipping discounts and their status with manufacturers. The problem is that the decrease in sales has caused the past due invoices to have a more significant effect on cash flow. Where there used to be a bit more of a significant source of cash, there is now less cash available to pay bills and buy new product. Most consumers and retail outlets do not realize how critical it is for distributors to maintain sales levels with manufacturers.
Accounts receivables lending is the way that a distributor can maintain cash flow through a bad economy and sustain its important relations. 1st Commercial Credit is a receivables lender and has vast resources ready to help you meet your purchasing needs. We advance your business cash for each of your legitimate invoices to creditworthy clients for s small fee.
1st Commercial Credit Makes Receivables Lending Quick And Easy
When you use 1st Commercial Credit, you are on the fast track to financial stability. We can approve your application the same day you submit it and we can have your approved account active in five business days or less. Once we activate your account, we can transfer funds within 24 hours of receiving a qualified invoice. We base our decisions on your customers' credit and not yours. That means that we can help your distributor business, even if it has bad credit.
Accounts Receivables Lending Becomes Your Business Edge
You are not the only small to medium sized distributor who is feeling the crunch of a tight economy. But when you start utilizing the receivables lending services of 1st Commercial Credit, you will be one of the few distributors that has the reliable cash flow necessary to sustain your business. You will be able to retain your status with manufacturers while the competition starts to fall behind. You will be able to keep your shipping discounts and pick up the customers who are leaving your competition because of their new, higher shipping rates.
The financial professionals at 1st Commercial Credit are ready to get you started on an accounts receivables lending program that will get you through these slow economic times and then help you to excel when the economy improves. Your company works hard to sustain the invoiced sales it has when there isn't a lot of money to go around in your industry.