Funding for Wholesalers and Distributors in Texas

Stuck in the middle

A distributor sits between the people who make a product and the people who sell it. Suppliers want payment quickly, sometimes on delivery or within a few weeks. Retail, restaurant and contractor customers want terms, often thirty days or more. The distributor carries the difference. The larger the order, the larger the gap, and the more successful the business gets, the more cash it consumes.

This is the reason so many profitable wholesale companies are short of cash. The profit exists on paper, but it is tied up in inventory on the shelf and invoices waiting to be paid.

The cash conversion loop

1. Buy inventory. Pay the supplier, often before goods are sold.
2. Store and handle it. Warehouse space, labor and insurance continue.
3. Sell and deliver. Customers receive the goods and an invoice.
4. Wait for payment. Net terms and slow payers lengthen the cycle.
5. Reorder. The next purchase is due before the last one is fully collected.

Shortening any step helps cash flow. Funding is useful when steps one and four overlap and the shelves have to stay full.

Two gaps, not one

Many distributors face both at once. A big seasonal order might mean buying a lot of stock at the same time a large customer is paying late.

When more sales makes things worse

A new large customer is good news, but it can strain operations. A distributor who lands a chain's regional account may have to buy several weeks of product in advance, add a delivery truck, hire another driver and wait forty-five days for the first payment. Some owners say no to the order because they cannot carry it. Others find working capital to say yes.

• Match the size of the funding to the size of the order and its payment terms.
• Track which customers consistently pay late and price the risk in.
• Avoid buying slow-moving stock just because the supplier offers a discount.

Funding details and an illustration

Texas Biz Funding provides $25,000 to $5,000,000, with a five-minute application and a soft credit pull. Funding can arrive in as little as 24 hours. Sole proprietors can apply, which covers owner-run distribution businesses.

For illustration only, not our terms or a typical outcome. A distributor wins a regional account that will order $80,000 of product each month on net 45 terms. The distributor must buy inventory up front and carry about six weeks before the first payment. With $30,000 in available cash, the owner needs about $50,000 more to fill the first order. A working-capital advance covers the difference, to be repaid as customer payments arrive.