Factoring Can Keep Your Distribution Company from Facing a Cash Flow Crisis!

Regardless of what specific industry (or industries) you are involved in, the role of a distribution company remains the same.  A distribution company acts as the middleman between the manufacturer and the retailer.  The distribution company is responsible for purchasing a product after it is manufactured and then selling it to retailers.  The key to becoming a successful distributor is maintaining a consistent and reliable cash flow.  The reason that a strong cash flow is so important for your distribution company is because it allows you to purchase products from manufacturers at the lowest prices and create the largest base of retailers.  Unfortunately, it is not necessarily easy for distributors to maintain the cash flow they need.  Because most of your customers will purchase the products you distribute on some form of credit, if you fail to receive their payments as expected, your cash flow will quickly start to suffer.

Although it may be possible for your distribution company to obtain a loan or other form of traditional financing, these options do not properly address the issue of maintaining a cash flow.  Instead, your distribution company needs a form of financing known as factoring.  Factoring is the best option for distribution companies because it directly handles the cash flow issue.  Much like a distribution company works as the middleman between two parties, a factor works as a middleman between a distribution company and their customers.  When you issue an invoice to a customer, the factor purchases it for seventy to ninety-five percent of its full value.  This gives the distribution company immediate access to the money they need to maintain a successful business.  Once the customer pays the invoice, the factor takes a small percentage as a service fee and returns any remaining balance to the distribution company.  Not only can factoring help distribution companies maintain their current level of business, but it can actually allow them to expand.  By increasing the cash flow, factoring allows distribution companies to do things such as gain customers from their competitors by offering more attractive credit terms, purchase larger quantities of products from manufacturers with the help of bulk discounts and even avoid the problems many distributors face due to seasonal sales patterns.  As you can see, if you own a distribution company, there is no excuse to not take advantage of the benefits that factoring can offer.