Last Updated on October 18, 2022
The wholesale and distribution industry depends on prompt invoice payments to cover operating costs and product purchases. Because your company is the middleman between manufacturers and retailers, you may experience payment delays for weeks or even months, creating a cycle of negative cash flow and increasing debt.
To keep growing your company, reduce stress, and stay competitive in the business, you need cash to make payments and build good relationships with suppliers – this is where wholesale factoring comes in.
In this article, we discuss how wholesale invoice factoring works, its benefits, and how it compares to other financing options. Read on to find out how altLINE’s invoice factoring services can improve your cash flow and reduce your financial stress!
What Is Wholesale Invoice Factoring?
Wholesale invoice factoring is when your company sells invoices to a factoring company like altLINE to receive a cash advance. Wholesale factoring is usually used to increase working capital when your customers take a long time to pay, helping you avoid negative cash flow and its impact on your business.
Benefits Of Invoice Factoring For Wholesale Companies
Wholesale invoice factoring is one of the best ways to get extra funds when your customers are slow to pay. Here are the benefits of factoring your wholesale invoices:
Get Your Accounts Receivable Invoices Paid In Days, Not Months
The best wholesale factoring companies approve your application within 1 or 2 days. This means you can receive up to 80-90% of your hard-earned money right away, instead waiting 30, 60, or even 90 days.
Access Capital To Grow While Maintaining Equity
Business owners often sell equity to pursue growth opportunities, but invoice factoring can set them up for long-term success without the sacrifice of equity. Wholesale invoice factoring gives you quick cash to fuel growth, pay debts, and purchase goods – without the need to give up any equity.
Take The Guesswork Out Of Payments
Overdue invoices and long payment terms can impede your business growth. Invoice factoring offsets slow and late customer payments to ensure your company’s financial health.
How Does Wholesale Factoring Work?
Wholesale and distribution factoring through altLINE works by turning unpaid invoices into cash, enabling you to pay operating expenses and fund business growth. Plus, when you submit wholesale invoices to altLINE, you can soften the financial blow of delayed invoices. Instead of waiting on customer payments, you can use our invoice factoring services to get a cash advance when you need it most.
Here is a guide to funding your business through our wholesale factoring services:
Submit Your Unpaid Invoices
We accept invoices from all kinds of customers, but we prefer creditworthy customers and large or medium-sized companies. Additionally, we do not factor invoices for customers who consistently avoid repayment.
If your invoice turnover time is between 30 and 90 days, your receivables are well-positioned for factoring.
altLINE Advances Up To 80-90% Of The Invoice Face Value
You can usually expect a factoring advance rate of 80-90% of your invoice’s value and a cash advance deposit between 24 and 48 hours after submission to altLINE. The exact timing of your cash deposit generally depends on your customer’s receipt and acknowledgment of goods.
altLINE Helps Collect Payment For Your Outstanding Invoices
Our team assists you in monitoring and collecting customer payments. We provide a secure lockbox for the customer’s money and report collections progress through an online customer portal. If you encounter issues, we will work with you to communicate with customers and resolve them professionally, helping you maintain good business relationships.
altLINE Pays Out The Remaining Unpaid Invoice
Once we deduct our factoring fee (generally 1-5% of your invoice), we will pay the remaining invoice value to your company.
Uses For Your Factoring Cash Advance
Wholesale and distribution factoring means you can get more funds without waiting on customer payments. You can eliminate long payment cycles and gain growth capital to accelerate business development. Here are some uses for invoice factoring cash advances:
Make Payroll and Grow Your Team
Paying your employees on time is essential to keep your business running. Unfortunately, delayed invoice payments can damage your cash flow and jeopardize payroll obligations. Receiving cash advances means you will not be late for payroll, ensuring happy employees and consistent productivity.
As you take on more customers, growing your team is essential to keep up with demand. Invoice factoring can provide the cash needed to hire new employees, helping you expand your business and avoid stagnation.
Take On New Orders
You should not be forced to wait for last minute payments to clear to purchase the products you need for a new order. Extra funds from wholesale factoring ensure you can afford to buy the products necessary to satisfy customers’ needs without sacrificing assets or equity.
Additionally, seasonal fluctuations can result in having low working capital during peak seasons. Factoring can give you access to cash, even when your customers have yet to pay.
Pay Operating Expenses
Wholesalers and distribution companies have to pay taxes, warehouse maintenance, transportation, and many other expenses. Extra funds from factoring cash advances help you pay for these without getting a loan or selling equity.
Negotiate with Suppliers
By accessing working capital with invoice factoring, your distribution company can make on time or even early payments to suppliers. By paying promptly, you can improve your working relationships with vendors, which can give you negotiation power to lower costs, leading to better margins for your business.
Wholesale And Industry Businesses We Fund And Finance
altLINE offers factoring services to various businesses in the wholesale and distribution industry. Here’s a sample of the many businesses we serve:
- Merchant wholesalers
- Retail wholesalers
- Specialized wholesalers
- Food and beverage companies
- Apparel companies
- Agricultural and farming companies
- Manufacturing companies
- Import-export companies
- Logistics companies
Factoring Your Wholesale And Distribution Invoices vs Other Funding Options
In addition to wholesaler factoring, you have a few other options to enhance business cash flow, like bank lines of credit, ACH or MCA loans, and quick pay discounts. But how do they stack up against distributor factoring? Read this section to find out:
Wholesale And Distribution Factoring vs Bank Line Of Credit
A bank line of credit is usually the first financial solution chosen by businesses. Many wholesale and distribution companies can qualify for a line of credit, but the funds may not be enough to grow their businesses.
Your bank typically looks at your fixed assets when approving a line of credit. As a wholesale and distribution company, you may have a lot of fixed assets like warehouses and transportation equipment, which makes approval easier. However, new companies may not have many fixed assets, so qualifying for a line of credit is tougher.
Factoring for distribution companies is typically the better option for new businesses because the financial company looks at your customers instead of your assets to determine funding. If you have an established customer base, factoring companies are more likely to give you the funds that banks cannot.
Wholesale And Distribution Factoring vs ACH/MCA Loans
ACH (automated clearing house) loans and MCA (merchant cash advance) loans are offered based on bank statements. These loans are very easy to qualify for but offer high interest rates that can even reach up to 60% of the initial loan.
While you can get ACH or MCA loans for wholesale companies easily, the high lender fees and interest may put you in a debt spiral – potentially leading to dire financial straits and putting your business at risk.
Wholesale factoring is typically safer for your finances because reliable and well-established customers will eventually pay their invoices – this, in turn, pays your cash advance. Because repayment is almost guaranteed, you can focus more on growing your business than scrambling to repay debts.
Wholesale And Distribution Factoring vs Quick Pay Discounts
Offering customer discounts for prompt invoice payments can accelerate cash flow when needed, all without the help of a third party. However, there is a crucial limitation to this method: there is no guarantee that customers will accept your early payment discount.
Some customers prefer having a good cash flow over saving money in the long run, so they may not take your discount and decide to make payments as scheduled – leaving you low on cash and unable to develop your business.
Factoring for wholesale and distribution companies is generally more reliable because you will receive a cash advance as long as your invoices are approved.
Typical Wholesale And Distribution Invoice Factoring Rates And Fees
Invoice factoring fees depend on how much you plan to factor and how long customers take to pay. If you factor more and get customers to pay faster, you will get lower factoring rates. We may also consider additional criteria like your years in business, customer base diversity, and overall customer credit quality.
When factoring an invoice, we charge two types of fees:
- Initial fee: This fee covers the distributor factoring company’s invoice processing expenses a set initial duration, (typically the first 30 days). Your initial fee usually ranges between 0.90% and 3.50% of the invoice’s face value.
- Incremental fees: These fees kick in after the initial fee period is up and compensate the factoring company for its time in collecting payments past the initial duration. Incremental fees typically range between 0.25% and 1.50% of the invoice’s face value and increase the longer an invoice is outstanding.
Requirements To Apply For Wholesale And Distribution Factoring
What do you need to apply for invoice factoring with altLINE? Here are the required documents you need to qualify:
List Of Existing And Potential Customers
To qualify for invoice factoring, you need a list of existing and potential customers. Factoring companies need this list to review the credit quality of your customer base and decide your eligibility for invoice factoring.
altLINE requires you to complete a form before you can factor invoices. Fill it out with the requested details and enclose these documents alongside your application:
- Business ownership identification
- Personal identification
- Employer Identification Number
- Relevant corporate paperwork
Accounts Receivable Aging Schedule
Accounts receivable aging schedules list all your outstanding invoices based on when they are due. We need this report to research your customers’ payment behaviors and determine their factoring eligibility. We will consider invoices that are 30 to 90 days outstanding, but invoices where customers state an inability to pay may be ineligible for factoring.
Frequently Asked Questions About Our Factoring Services
Do you have some questions about factoring for distribution companies through altLINE? Here are some common questions answered!
Do you need to run a credit check before getting started?
altLINE runs a credit and background check on all wholesale company owners. However, there are no minimum credit thresholds for approval. Background checks are reviewed for financial-related crimes or felonies. In the event a borrower has a spotty background, approval with altLINE may be in question, but if the borrower is disqualified, altLINE will often work with the borrower to identify a wholesale factor that is willing to help.
Do you require UCC filings when factoring wholesale invoices?
Upon executing a term sheet, altLINE will file a UCC on the client’s business. This UCC filing allows altLINE to properly secure the collateral (i.e. the invoices) it plans to advance against when the factoring facility is in place. UCC filings are an integral part of any form of lending.
Is wholesale factoring a debt or loan?
Wholesale factoring is neither debt nor a loan. Invoice factoring is the sale of your invoices to a third party. The money advanced against these invoices will be repaid by your customers. However, altLINE is a recourse factor, so you may need to pay the cash advance back if your customer fails to pay their invoice.
Do you offer non-recourse wholesale factoring?
altLINE only offers recourse wholesale factoring. While you must repay the cash advance if your customer fails to pay, recourse factoring structures often allow for factors to extend lower rates and larger credit limits on your customers.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.