Seafood distributors that sell to large grocery stores, hotels, and other venues often have to provide their clients with 30 to 60 day terms. Most large corporate clients demand credit terms as a condition of doing business. This demand leaves you little room to maneuver because if you don’t offer terms, your clients may go to a competitor.
Expenses are often prepaid
Conversely, most seafood distributors either get short payment terms from their suppliers or must prepay for goods altogether. Whereas they must pay their suppliers quickly, they must wait up to a month before they can collect payment from their own clients. Unless your seafood distribution company is well funded, this discrepancy in payment expectations can put you in a financial bind.
At the very least, you won’t be able to grow as quickly as you could have, simply because you lack working capital. At worst, you could overextend your company and possibly miss important payments.
Two financial problems
Seafood distributors often face either or both of the following problems:
- Needing funds to pay suppliers and vendors
- Needing funds to cover ongoing corporate expenses
One way to solve these financial problems is to use accounts receivable factoring.
Solving slow invoice payments
If most clients paid their invoices a few days after receiving the seafood, you probably would not have a financial problem. You could operate the company effectively since you would recover your investments shortly after delivery. The problem is that most grocery, retail, and hospitality clients only pay in 30 to 60 days.
One way to improve your cash flow is to use accounts receivable financing. A receivables factoring company can finance your slow-paying invoices from creditworthy customers. Basically, the factor advances funds to your seafood distribution company and holds your invoice until your client pays in full.
Many companies use accounts receivable factoring to finance their business on an ongoing basis because it improves their cash flow and allows them to offer terms to clients.
Perishable goods = risk
Because fish is a perishable good with a limited shelf time, financing seafood distribution companies tends to be viewed as risky and most financing companies prefer to work with companies that have industry experience. Seafood distribution is one of the few industries in which factoring does not work for a start-up company, unless the founders have worked at other seafood distribution companies.
Vendor guarantees may provide an option
If your main problem is that your suppliers are not extending credit to your company, and you need credit to grow, consider using a vendor guarantee. A vendor guarantee is an add-on solution to a factoring plan, in which the factor agrees to pay your suppliers on your behalf, using the factoring proceeds to pay your vendor.
When you factor invoices, the financing company agrees to pay your suppliers first — before remitting any funds to your company. This sort of guarantee can be used to leverage credit terms from your suppliers, though success is not guaranteed and depends on your vendors.
Strategic financial benefits
Using a factoring line offers a number of strategic benefits to your company. The obvious benefit is that a factoring line improves your cash flow, enabling you to pay suppliers and cover ongoing expenses. However, the line also improves your ability to grow your business because it does not have fixed limits. The limit of your line is determined by your clients’ creditworthiness, the size of your invoices, and your billing practices. These attributes make factoring an ideal option for seafood distribution companies that are growing quickly.
How to qualify?
The most important qualification for invoice financing is to have creditworthy clients because your invoices are the assets being financed. Also, your company should:
- Have good billing practices
- Work with good suppliers
- Have reliable inspection procedures
- Be free of major legal and tax problems
Get more information
We can provide factoring at competitive rates to seafood distribution companies. For information, get an online quote or call (877) 300 3258.