Invoice Factoring for Wholesale and Distribution companies
Invoice factoring is a type of financing that allows wholesale and distribution companies to get cash quickly. A wholesale/distribution company can sell its outstanding invoices to a third-party financial institution, called a factoring company.
Wholesale and distribution companies can sell their invoices to the factoring company at a discounted rate. Instead of waiting for their customers to pay the outstanding invoices. The factoring company will then advance a percentage of the total value of the invoices to the company. This advance is usually between 70-90%. Once the financing company receives payment from the customers, they will deduct the advance amount and their fees due at the time of payment, and the remaining amount will be paid to the wholesale and distribution company, also known as the reserve amount.
This financing option is particularly useful for wholesale and distribution companies because they often must wait for extended periods for their customers to pay their invoices, which can create cash flow problems. By selling their invoices to a factoring company, these companies can get immediate access to cash. This can be used to cover expenses such as payroll, inventory, and equipment purchases.
What are the benefits of factoring services for wholesale & distribution companies?
Invoice factoring can be a useful tool for wholesale and distribution companies looking to improve their cash flow, manage their credit risk, and streamline their collections process. Here are some of the advantages:
1. Improved cash flow: Invoice factoring provides immediate cash flow to the company. This allows them to cover expenses such as payroll, rent, and inventory purchases without waiting for their customers to pay their invoices.
2. No debt incurred: Invoice factoring is not a loan, so wholesale and distribution companies do not incur any debt. Instead, they are selling their outstanding invoices to a factoring company. Meaning, there are no monthly payments or interest charges.
3. Easy qualification: Invoice factoring is easier to qualify for than traditional bank loans because it is based on the creditworthiness of the company’s customers, not necessarily the company itself. This makes it an attractive option for companies that have a limited credit history or poor credit scores.
4. Flexible financing: Invoice factoring is a flexible financing option, allowing wholesale and distribution companies to sell as many or as few invoices as they need. This means they can adjust their financing based on their cash flow needs.
5. Outsourced collections: The factoring company takes over the responsibility of collecting payments from the company’s customers, freeing up time and resources for the company to focus on other areas of its business.
How to apply for factoring services
There are certain necessary steps that wholesale and distribution companies should follow in order to apply for factoring services and potentially benefit from improved cash flow, flexible financing, and outsourced collections. To start, companies should research factoring companies that specialize in providing financing to wholesale and distribution companies. Look for companies that offer competitive rates and have a track record of working with similar companies in the industry. Once you have identified a few potential factoring companies, submit an application. The application typically requires information about your company, such as financial statements, accounts receivable aging reports, and customer information.
After this, the factoring company will provide you with a proposal that outlines the terms of the factoring agreement, including the fees and rates charged. If you agree to the terms, you will sign a factoring agreement. Once the agreement is in place, you can start submitting invoices to the factoring company for financing. The factoring company will advance a percentage of the invoice amount to you, typically within 24-48 hours.
Overall, the application process can vary depending on the factoring company and the specific needs of your business. However, by following these steps and working with a reputable factoring company, you can quickly access the financing you need to grow your wholesale or distribution business.