Wholesalers occupy an important, but difficult position between manufacturers and retail businesses. They work directly with manufacturers to efficiently import goods, and help retailers to access these affordably and without the usual bureaucratic hassle. In essence, they function as a logistics specialist for both their customers and their suppliers.

In filling this role, though, large-scale importer wholesalers face significant financial limits. Importing goods efficiently involves large shipments and suitably sizeable investments. Not only does this limit what smaller importers can work with, it also places them at significant risk if customers fail to pay on time. To manage this, importer wholesalers are using an innovative combination of supply chain finance and invoice finance. Not only does this allow them to mitigate the risk of late customer payments, it gives them the financial power to grow rapidly and to meet the needs of customers of any size.

Preventing financial interruptions

Invoice finance and supply chain finance are both ways for businesses to free up additional working capital when they need funds. Used on their own, both are great ways to avoid running out of funds due to interruptions to revenue, unexpected costs, or other cash flow interruptions.

Invoice finance

Businesses can use invoice finance to give themselves an advance on income that they’ve already earned. If they need additional funds for any reason, they can simply trade an outstanding invoice in to their financial institution for most of its value. The funds are issued within just a few hours, making it a great way to get cash on short notice. The financial institution will then collect the outstanding payment from the client when it’s due, before issuing the remaining amount to the business.

Supply chain finance

Instead of coming up with additional capital, supply chain finance helps businesses to retain the working capital they already have on hand. Instead of paying suppliers out of their own capital, they can make payments from a separate credit fund. Payments on that fund can then be deferred by up to 90 days, effectively extending longer payment terms to the business.

Getting control of the cash conversion cycle

Importers are limited by the amount of money they can invest in import goods. When shipments arrive, are sold, and the revenues are collected, these can then be reinvested in the next shipment. The time between that initial investment, and when revenues are collected is the cash conversion cycle (CCC). The shorter this cycle is, the more often the business can reinvest it to generate more income. A shorter CCC is therefore better, but something remarkable happens if the CCC is reduced to zero.

With a CCC of zero, businesses can collect revenues before they need to make the respective investments. This means that, from a financial perspective, they can fill orders of virtually any size, unlocking enormous growth potential. By combining both invoice finance and supply chain finance, importers can seize control of their CCC to achieve this.

How it works

A business that uses supply chain finance doesn’t immediately need to pay the initial investment for an order. Instead, it can simply pay the supplier from the credit fund, and then defer payments on it for up to 90 days. This means that just by using supply chain finance, an importer wholesaler can reduce their cash conversion cycle by that amount of time. In some cases, this alone will be enough time to purchase, ship, and sell the stock. Those 90 days aren’t always enough time, though. Long customer payment terms, late payments from customers, or logistical hurdles can all delay the process. This is where invoice finance comes in.

Revenues need to arrive exactly when they’re supposed to, and the timing needs to be as predictable as possible. Invoice finance allows a business to take full control of their CCC, by eliminating any unpredictable elements. If a payment doesn’t arrive—or isn’t due to arrive—before the balance on the supply chain finance fund needs to be paid, the business simply finances the invoice to cover the payment.

While both of these tools are useful in their own right, combining them in this way is a key way for wholesalers to unlock rapid growth potential. With a cash conversion cycle of 0 or less, they can confidently take on larger customers, and grow much more quickly than their finances would otherwise allow. This ensures that they can take advantage of every growth opportunity they’re faced with, and that their future success is limited only by their ability, rather than their resources.