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Payment delays are sadly common in wholesale and distribution. Net terms of 30, 60, or even 90 days leave suppliers waiting long after goods have been shipped. Still, expenses like inventory restocking and warehouse costs continue on schedule, tightening cash flow.
Invoice factoring is a strategic way to solve this cash flow problem and keep capital flowing. It involves selling outstanding invoices in exchange for upfront cash, giving businesses the liquidity they need.
With solutions like wholesale invoice factoring and factoring for distribution companies, you can maintain healthy operations without relying on loans or stretching your credit.
If cash is slowing you down, wholesale factoring gives you the liquidity you need to help your business thrive.
How Wholesale and Distribution Factoring Works
A Simple Process That Takes You From Invoice To Advance
Getting started with Business Factors is quick and straightforward. Our process helps factoring wholesalers turn receivables into working capital without added complexity.
Here’s what to expect when you factor your invoices:
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Submit Your Invoice
After billing your customer, forward a copy of the invoice to us. We’ll begin reviewing the account right away.
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Invoice Verification and Client Credit Review
We confirm the invoice details and evaluate your customer’s payment history to assess creditworthiness.
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Get Paid a Percentage Upfront
You receive an upfront advance of up to 96% of the invoice. We hold the remaining portion in reserve until the invoice is fully paid.
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Final Payment
Once we receive the full payment, we release the remaining balance minus any applicable fees.
Costs and Fees
Comparing Funding Solutions for Wholesalers and Distributors
Your chosen funding method can significantly impact your bottom line, whether you’re trying to keep up with supplier payments or manage seasonal demand. Wholesale factoring is one of several options available that is often compared to traditional and alternative financing routes.
Before we dive deeper into the benefits of wholesale and distributor factoring, let’s look at how it stacks up against other funding methods:
How Factoring Fees Are Structured
As the table above shows, rates and fees depend on factors such as invoice volume and customer credit risk.
It’s also worth noting that factoring for distribution companies and wholesalers involves two pricing models: monthly and weekly fee structures.
Let’s look at how each works in practice:
Example 1: Monthly Fee Model
You submit a $100,000 invoice and receive a 90% advance. That gives you $90,000 upfront, with the remaining $10,000 in reserve.
If the factoring company applies a 2.2% monthly fee, the total cost is $2,200 for each month the invoice remains unpaid. If your customer pays after 60 days, the total cost is $4,400.
Once the invoice clears, you’ll receive $5,600 back from the reserve.
Example 2: Weekly Fee Model
Now, apply the same $100,000 invoice and advance rate. However, instead of monthly billing, the agreement includes a 0.75% weekly fee ($750).
If client payment comes in after five weeks, the total cost is $3,750, which is lower than the monthly model in this scenario. After fees are applied, you’ll receive $6,250 from the reserve.
The weekly model can save you money on fast-paying accounts but becomes more expensive if payments drag on.
Hidden Fees and How to Avoid Them
Ideally, wholesale and distribution factoring should be transparent and predictable. However, some providers bundle in added costs that can shrink your margins if you’re not careful.
Here’s what to watch out for:
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Minimum Volume Requirements
Some companies require you to factor a specific volume of invoices every month. If your factoring volume slows down, penalties may apply.
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Administrative Charges
Extra fees for credit checks or wire transfers can inflate your effective cost.
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Long-Term Lock-Ins
Some contracts include rigid terms and early termination fees, which can create problems if your business needs flexibility or seasonal funding.
Practical Tips to Avoid Hidden Fees
As you leverage distribution and wholesale invoice factoring, these steps can help you avoid surprises and protect your working capital:
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Ask for Full Fee Disclosure
Before signing any agreement, request a complete breakdown of all possible charges and penalties.
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Work With a Trusted Factoring Company
Choose a company with experience in factoring wholesalers and distributors, and known for their transparency and customer-first agreements.
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Track Payment Activity Regularly
Monitor how your factoring partner applies payments and manages your receivables. If an invoice is delayed in processing or flagged incorrectly, it can delay reserve payouts or trigger available fees.
Why Your Business Needs Wholesale and Distribution Factoring
Support Your Next Shipments With Steady Cash Flow
When you ship high volumes on net terms, cash flow gaps can disrupt your ability to meet supplier deadlines or fulfill your next round of customer commitments.
Instead of waiting for your buyers to pay weeks or months after delivery, distribution and wholesale factoring unlocks the funds tied up in your receivables and keeps your operations moving.
It’s worth noting that invoice factoring isn’t simply emergency financing. Since your funding capacity increases along with your invoicing volume, this strategy gives you more flexibility and growth opportunities.
Waiting on payments doesn’t grow your business. Putting capital back into your supply chain does, and we’re here to help you do just that.
Industries That Benefit From Factoring
A Solution Trusted Across Many Business Models
While wholesale invoice factoring and factoring for distribution companies are among the most common uses of this service, invoice factoring also plays a significant role across other sectors that operate on extended payment terms.
Information Technology Factoring
Truck/Freight Factoring
Oil & Gas Factoring
Staffing Factoring
Telecom Factoring
Wholesale Distributing Factoring
Recourse vs. Non-Recourse Factoring
Which Model Fits Your Business Needs?
Both options give you quick access to working funds. However, recourse and non-recourse factoring differ in handling risk and upfront costs. Understanding these differences can help you choose the structure that best supports your sales cycle and buyer relationships.
Recourse Factoring
Non-Recourse Factoring
This is the more common model used in wholesaler and distributor factoring. As in any other factoring agreement, you receive an advance on your invoices. However, you must cover the balance if your customer fails to pay.
Benefits of Recourse Factoring
- Lower factoring fees since the risk stays with you
- Easier approval, especially for high-volume accounts
- Larger advance rates compared to non-recourse options
Common Risks Associated With Recourse Factoring
Recourse factoring works well if your customers have strong payment histories. Still, there are risks to manage:
- If your customer fails to pay, you must buy back the invoice or replace it.
- A wave of non-payment can increase liability and strain your resources.
- You carry the full weight of customer credit reviews. Also, chasing down payments can add to the operational workload.
With this model, the factoring company assumes the credit risk. If your customer doesn’t pay due to insolvency or verified default, you’re not required to repay the advance.
Benefits of Non-Recourse Factoring
- The factor takes responsibility for defaulted payments
- Custom credit checks are handled for you
- Internal resources aren’t tied up in collections.
Common Risks Associated With Non-Recourse Factoring
Non-recourse factoring adds protection but comes with trade-offs. Here are some points for consideration:
- Factoring rates are generally higher than recourse options. These rates reflect the increased risk that the factoring company assumes.
- Advance rates may also be slightly lower.
- Only buyers with strong credit profiles typically qualify, which may limit the accounts you can factor.
A Quick, Risk-Free Way To Access Capital
With non-recourse wholesale and distributor factoring from Business Factors & Finance, you get fast funding and complete protection. We free up your cash flow while absorbing the risk so you can focus on fulfilling orders.
Reach out today to work with a team that knows how to keep wholesalers and distributors moving forward.
FAQs
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Is wholesale and distributor factoring a loan?
No, wholesale and distribution invoice factoring isn’t a loan. You’re selling unpaid customer invoices to a factoring company for an early payment, so there’s no debt or monthly repayment.
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What types of businesses use wholesale and distribution factoring?
Businesses that sell goods on net terms and often experience payment delays commonly factor their invoices. These include suppliers of consumer goods, industrial parts, food and beverage products, cleaning supplies, electronics, and more.
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Can I still use factoring if my business is seasonal?
Absolutely. Many businesses rely on this solution during slow periods or high-demand seasons. Factoring is flexible and scales with your sales volume, making it ideal for those with fluctuating cash flow.