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1 . What Is Wholesale Factoring? →
2. How Does Wholesale Invoice Factoring Work? →
3. Benefits of Distribution Factoring →
4. Factoring for Distributors vs. Other Financing Options→
5. How Wholesale Factoring Companies Evaluate Risk →
6. The Wholesale Factoring Application Process →
7. How to Choose a Distribution Factoring Company →
8. The Wholesale Factoring Qualification and Application Process→
Big quantities, big contracts, and, unfortunately, big payment delays.
These three things define life as a wholesale business owner. While selling large quantities of products to massive retailers can be lucrative, it also often leads to payment delays that range from weeks to months. This is a problem, especially when considering how essential working capital is to keeping operations running.
Simply put: when wholesale businesses are forced to wait around for payments, they jeopardize their cashflow. Delays can leave them without the capital they need to cover their operating costs and pay their employees, thereby also limiting their ability to take on new work. It’s a precarious situation with no clear solution—or is it?
Introducing wholesale invoice factoring, a proactive financial solution that provides a vital lifeline in the form of immediate access to funds for businesses navigating the complexities of supply chains and bulk transactions.
Unlike other financing options, it doesn’t come saddled with interest rates or the need to lend assets. This means it helps address the needs of the present without compromising the future. This ultimate guide to factoring for wholesalers will cover everything you need to know, from the benefits to the application process.
Wholesale invoice factoring, also known as distribution factoring, provides businesses with immediate liquidity, allowing them to address cashflow challenges associated with extended payment cycles.
This process involves a third-party institution, known as a factor, purchasing a company’s unpaid invoices (accounts receivable) at a discounted rate. Wholesale factoring accelerates the conversion of outstanding invoices into working capital, enabling businesses to meet operational expenses, negotiate favourable terms with suppliers, and seize growth opportunities.
Wholesale factoring gives you the money you’re owed by your buyers within 24 hours instead of 30, 60, or even 90 days down the line. By partnering with experts in wholesale invoice factoring like REV Capital, you gain financial empowerment and control over your business operations.
Learn more about invoice factoring with REV Capital.
It also shifts the burden of collection onto the factoring company. They front you cash while also taking on this added responsibility. As such, they will detract a small fee, typically averaging 1-3% from the remaining balance they remit once the invoices are collected.
This dynamic financial tool not only enhances cashflow but also contributes to improved profitability, flexibility, and more stable relationships within the wholesale supply chain
The wholesale factoring process begins when a wholesale business partners with a factoring company, like REV Capital. They then complete a series of assessments to determine if the business qualifies. From there, factoring for distributors can be broken down into five steps—just be aware these can vary between companies.
Upon approval, both parties agree on the terms of the factoring arrangement. This includes the discount rate applied to the invoices, any additional fees, and the duration of the agreement.
The wholesale business continues its normal operations, issuing invoices to its customers for goods or services provided. Instead of waiting for customers to pay the invoices within their usual credit terms, the wholesale business submits the invoices to the factoring company for immediate processing.
The distribution factoring company then pays the wholesale business up to 98% of the invoice value on the day of submission. After paying this advance, the factoring company begins reaching out to your clients to collect the unpaid invoices. When the customers pay the invoice, they send payments directly to the factoring company instead of the wholesale business.
The factoring company deducts its fees, including the discounted rate, and holds the remaining funds in a reserve account. Once the customer payments are collected, the factoring company releases the reserve amount to the wholesale business, minus its fees. From there, the wholesale business and the factoring company continue this collaborative process.
The value of increased liquidity can’t be quantified strictly in dollars and cents. Better managing your cashflow with distribution factoring can help pay operational expenses, compensate employees for their labour, and even invest in growth opportunities that may present themselves.
With improved cashflow and a steady source of working capital, distribution companies can negotiate more favourable terms with suppliers. This enhanced purchasing power can lead to discounts, better payments terms, and overall cost savings, contributing to increased profitability.
Selling and moving goods is the meat and potatoes of your work as a wholesale company. Administrative work—such as chasing clients down for payment—is the vegetable you’d much prefer to push aside. Factoring for wholesalers allows you to do exactly that by shifting this burden onto the factoring company.
Taking on a loan can be a risky proposition if you’re struggling to make ends meet. Invoice factoring isn’t borrowing money; it’s getting you your money much faster. It also doesn’t involve any banks, meaning you won’t have to deal with their headache-inducing process of borrowing money from them, either.
As we have alluded to in the previous section, there are many benefits to choosing supply chain factoring over other financing options. We’ll continue this ultimate guide to wholesale factoring by breaking down these other options in more detail.
If you’re running a wholesale business, you’re probably already familiar with the pros and cons of lines of credit. While you’re only charged on the amount of money used, this financing solution does not address the long-term challenges associated with slow-paying customers.
A line of credit is not a viable long-term solution. Paying money to borrow money is not sustainable, especially given how interest rates continue to skyrocket.
Inventory financing allows wholesale businesses to leverage their existing inventory as collateral for a loan. Lenders—be they a bank or financial institution—will provide funds based on the value of the inventory.
This option can work for wholesale businesses with extremely valuable inventories. However, it’s not viable for those just starting, or those who aren’t comfortable putting their inventory on the line to make ends meet. There are better options.
These are where a wholesale business receives a lump sum upfront in exchange for a percentage of daily credit card sales. Repayments are made as a fixed percentage of daily revenue, with no collateral needed.
However, this kind of advance can be expensive; rates usually soar well above those of an already undesirable traditional loan. As such, while they can help in a pinch, the long-term viability of merchant cash advances is questionable.
Wholesale factoring companies play a pivotal role in mitigating risk for businesses by assessing the creditworthiness of both the wholesale client (the business seeking factoring services) and its customers. The risk evaluation process is multifaceted, encompassing various factors to ensure a comprehensive understanding of the financial health and stability of the entities involved.
Here's a detailed exploration of how wholesale factoring companies approach risk assessment:
Selecting the right factoring partner is a critical decision that significantly influences the success of a wholesale or distribution business. Don’t forget the responsibility they are assuming—they’re going to be interacting with your clients, so you want to be sure they’re professionals who are going to represent your business well.
The following elements should be considered when evaluating invoice factoring services:
Research the reputation of potential accounts receivable factoring partners. Do this through testimonials, reviews, and references from other businesses in your industry that have worked with them. A reliable and reputable partner is crucial for a long-term and successful factoring relationship.
Understand the factoring fee structure of the organization you’re partnering with. Transparent and straightforward terms are essential to avoid surprises and ensure that you receive the maximum value from the factoring arrangement.
Consider the minimum the company sets as well. This is a predetermined number (as it relates to the value of your invoices) that must be factored in every period, which can be anything from a month to a fiscal quarter or even a year.
Calling yourself a “wholesale factoring company” is one thing, but actually having industry-specific knowledge backed by proof is another. When choosing who to work with, make sure they understand the unique challenges of the wholesale and distribution industry, its payment cycles, and the operational dynamics of your business, leading to more tailored and effective financial solutions.
Beyond the expectation that you work in the wholesale industry, you can expect qualification criteria to vary between factoring companies. Nonetheless, here are some general requirements you may need to meet when seeking factoring services:
Online applications are encouraged by most wholesale invoice factoring companies. During this process, you will likely have to provide:
Do note that additional information may be required. The ins and outs of the application process will ultimately depend on the wholesale and distribution factoring company—connecting with yours is the best way to get a more accurate picture.
→ Related resource: Experts Answer: Is Invoice Factoring Right For Your Business?
Don’t let cashflow constraints hinder your wholesale and distribution company’s potential—your journey to financial empowerment begins now.
Revolutionize your approach to working capital with REV Capital. Invoice factoring is what we do best.
Over the years, we’ve established ourselves as the premier provider of factoring for distributors by working with major industry players. Our clients get 24/7 access to a detailed online portal for ongoing support, industry-leading customer service, and hyper-competitive rates. You’d be hard-pressed to find a more comprehensive factoring company elsewhere.
Connect with a REV Capital Client Relationship Manager today to start taking advantage of the benefits of wholesale and distribution factoring. We can’t wait to work with you!
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