Most retail food brokers sell their products on credit by offering their commercial customers – grocery stores and supermarkets – up to 45 (or even 60) days to pay their invoices. Offering terms is a conventional way of doing business, and most large customers, especially large retail outlets and supermarkets, expect to get terms.
On the other hand, smaller food brokers often have to pay their vendors in ten days or less. Companies that are not well funded and don’t have the resources to cover the gap between paying vendors and getting paid by clients can encounter problems: cash flow shortages, missed vendor payments, and lost opportunities.
This financial problem is twofold: the first part involves getting the funds to pay suppliers in order to fulfill orders; the second part deals with financing client invoices to avoid waiting up to 60 days to get paid.
Financing vendor payments
If you have a large, confirmed order from a client and need funds to pay your suppliers, consider using purchase order financing. This financing solution has a number of benefits and provides funds to cover the vendor payments related to a specific purchase order. It uses the purchase order as collateral for the transaction. The finance company pays your supplier, either through a letter of credit or cash against shipping documents, enabling your supplier to ship the goods and conclude the order. The transaction settles when you finance the invoice, or when your client pays.
Financing your invoices
Paying your suppliers is only half the equation. You still need funds to operate your business while you wait for clients to pay their invoices. You can often get funds by using accounts receivable financing. This solution accelerates the revenues tied to slow-paying invoices from creditworthy clients. Often, companies combine PO financing and factoring transactions to lower the total transaction costs.
Invoice factoring works through an intermediary finance company that funds your invoices from creditworthy clients and hold them until payment.
One advantage for retail food brokers is that factoring and PO funding have simple qualification requirements. As opposed to conventional bank finance solutions that require substantial assets and healthy cash flows, these programs require that:
- You have a solid purchase order
- You have a reliable supplier
- Your commercial customers have good credit
- Your gross margins exceed 15%
- Your receivables be unencumbered
Using these two solutions allows retail food brokers to accomplish two things: they can take large orders exceeding their current funding without worrying about how to pay suppliers, and they can provide payment terms to their retail store clients. If used strategically, factoring and purchase order financing can help retail food brokers grow beyond their current financial capabilities and limitations.
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We are a leading factoring company and can provide high advances at low rates. For information, get an online quote or call (877) 300 3258.