Quick answer
Wholesalers and distributors usually borrow to carry stock, fund debtors on 30 to 60 day terms, take on a new product line or customer, and buy forklifts, racking and delivery vehicles. Invoice finance and stock or trade finance are the core tools, with a line of credit for swings and equipment finance for vehicles and warehouse gear. Lenders focus on your debtor quality, customer concentration, stock turnover and how well your PPSR position is documented.
Key points
- Distribution runs on volume and thin margins, so the cash tied up in stock and debtors usually dwarfs the profit on each sale
- Retention of title works in both directions: your suppliers may hold rights over your stock, and you can protect your own stock with customers through the PPSR
- Large customers with over $100m in revenue must publicly report how quickly they pay small suppliers under the Payment Times Reporting Scheme
- Invoice finance facilities often cap how much of the book can rest on one customer, so a concentrated debtor list limits what you can draw
Distributors make money by moving a lot of product for a small margin on each unit. That model works beautifully until growth arrives. A new customer or a new range can double the stock you hold and the invoices you’re waiting on, while the profit grows only by a sliver. Plenty of profitable wholesalers have run short of cash in their best year.
Lenders who regularly fund this sector start with one number: how many days your money spends outside the bank.
How many days is your cash tied up?
The cash conversion cycle is a simple sum:
Days stock on hand + days customers take to pay − days your suppliers give you = days you need to fund.
Take a distributor turning over $12m a year with cost of goods of about $9.6m:
| Measure | Days | Approx. value tied up |
|---|---|---|
| Stock held | 60 days | about $1.58m |
| Customers’ average payment time | 45 days | about $1.48m |
| Less supplier credit | 30 days | about $0.79m |
| Net cash cycle | 75 days | about $2.27m of working capital |
Now suppose a new national customer adds $3m of sales on 60 day terms, and the range needs more stock. The working capital need jumps by well over half a million dollars, even though the extra profit may be a fraction of that. That’s why so many distributor loan requests are about growth, not trouble.
Our cash flow gap calculator runs the same sums on your figures, and the working capital cycle entry in our glossary explains each part.
Which finance fits a wholesale business?
Invoice finance. For most distributors this is the main facility, because debtors are usually the biggest asset on the balance sheet. A lender advances a large share of each approved invoice soon after it’s raised, and the limit grows as sales grow. See invoice finance and the comparison of invoice finance versus an overdraft.
Stock and trade finance. Funds purchases from suppliers, often paying them directly, with repayment due after a set period. It suits seasonal buying and bulk purchases at a discount. For a side-by-side look at stock funding, see buying stock and inventory.
Supply chain finance. Sometimes offered by large customers or suppliers, letting invoices be paid early through a third-party funder. It can help, though it’s worth understanding who pays the cost. See supply chain finance.
Line of credit. Covers the general ups and downs that the other facilities don’t.
Equipment finance. Forklifts, racking, delivery vans and trucks, and warehouse management systems.
Property-secured loans. For a warehouse purchase or a bigger buffer when the bank’s limits are reached.
Why the PPSR matters more to distributors than most
The PPSR is the national register for security over personal property, meaning almost anything that isn’t land, stock included. For a distributor it cuts both ways.
Your suppliers’ interests. Plenty of suppliers keep ownership of goods until paid and register a purchase money security interest over the goods they supply. Until you pay them, that interest can rank ahead of your lender’s claim over that stock. When a lender searches the PPSR and finds several supplier registrations, it may lend less against your inventory.
Your own interests. If you sell on credit, you can protect yourself the same way: registering your own interest over stock you supply to customers, so you’re better placed if a customer becomes insolvent before paying. Registration has strict timing and detail requirements, so it’s worth setting up properly. Our glossary entry on retention of title has more.
Want a second opinion on your facility mix? Put the question to us; it costs you a minute and nothing on your credit record.
Big customers, slow payments and the reporting scheme
Groups with consolidated revenue above $100m have to disclose, through the Payment Times Reporting Scheme, the speed at which they settle invoices from small suppliers. Those reports are public on the regulator’s register. Separately, many large companies have signed the voluntary Australian Supplier Payment Code, committing to pay eligible small suppliers within 30 days of a correct invoice.
For a distributor, that information is useful in two ways. It helps you negotiate terms with a large customer by showing what they’ve committed to. And it helps a lender judge the quality of your debtor book: an invoice to a business that reliably pays in 30 days is worth more to a financier than one to a customer that habitually stretches to 75.
What lenders worry about
- Concentration. One customer making up a large part of debtors usually means the financier limits that customer’s share of your available funds.
- Dead stock. Slow-moving or obsolete lines that are still counted at full value.
- Credit notes and returns. High rates of disputes or returns reduce what a lender will advance against invoices.
- Supplier dependence. Losing a key distribution agreement can remove a large share of turnover overnight.
- Tax arrears. GST is a big number in a high-volume business and falls behind quickly if cash is tight.
Documents to prepare
- Aged debtors and aged creditors reports, ideally from your accounting software
- Two years of financial statements and the latest BAS
- Recent business bank statements, typically six months or more
- A stock report showing value, ageing and turnover by category
- Your main supply and distribution agreements
- Copies of your standard terms of trade with customers
- Details of existing finance and any PPSR registrations you know of
Example: a distributor adding a national customer
Hypothetical, for illustration. A plumbing and hardware supplies distributor in Adelaide turns over about $8m, selling to around 300 trade customers and independent stores. A national retail group offers to range its products in 60 stores, adding about $2.5m in annual sales on 60 day terms. The owners estimate they’ll need an extra $450k of stock and around $400k more tied up in debtors once the account is running.
Their bank overdraft is already close to its limit and secured over the warehouse. The owners set up an invoice finance facility over the whole debtor book, which releases cash both from existing trade accounts and the new national customer, with the lender capping the new customer’s share of the facility. Bigger seasonal buys from their main supplier run through a separate stock facility. The bank keeps its warehouse loan, and the overdraft reduces as the invoice facility takes over.
For businesses that also bring stock in from overseas, see our page on importers and exporters.
Find the facility that grows with your sales
Distribution finance works best when it scales with turnover, rather than forcing you back to the bank every time you win a customer.
Getting started is a one-minute form, and your credit rating is left alone. Your information isn’t broadcast to financiers, so there’s no flood of unknown callers. A person on our team reviews your debtors, stock and plans, then calls you directly. Being exact about turnover, debtor terms and current facilities lets us point you to a suitable structure first time.
Frequently asked questions
What's the best finance for a wholesale business?
For most, an invoice finance facility is the foundation, because the debtor book is usually the largest asset. Stock finance or trade finance funds purchases from suppliers, and a line of credit covers the rest. Vehicles and warehouse equipment sit well on equipment finance.
Can I borrow against my inventory?
Sometimes. Lenders prefer stock that's easy to sell, not perishable and well recorded, such as hardware, building supplies or packaged goods. They usually lend a conservative share of its cost value, and they'll check whether suppliers hold retention of title over it.
How does retention of title affect my borrowing?
If a supplier has registered a security interest over the goods it sells you, it may rank ahead of your lender on that stock until it's paid. Lenders search the PPSR to see what's registered against your business before they decide how much to lend.
My biggest customer pays in 60 days. Is that normal?
It's common with large retailers, builders and national groups, although many have committed to faster payment of small suppliers. Invoice finance lets you draw on those invoices early. It's also worth checking the Payment Times Reporting Register to see what your customer has reported.
Will a bank lend to a distribution business?
Often yes, particularly if you have property security or a long trading history, and bank facilities are usually the cheapest. Non-bank invoice and stock lenders can lend more against your debtors and stock when a bank's limit runs out.