Industries
Wholesale and distribution
Distribution businesses fund stock and receivables at the same time. Facilities are usually built as a combined line covering purchase through to customer settlement.
Wholesale and distribution
- Stock and inventory funding
- Import finance and letters of credit
- Receivables purchase and supply-chain programmes
- Common structures
- Borrowing-base facilities, import finance, receivables purchase, supply-chain finance
- Typical facility size
- £250,000 to £20 million
- Indicative pricing
- Base rate plus 2–5.5% depending on stock and debtor quality
- Security
- Debenture, charge over stock, assignment of receivables
- Time to funding
- 3–7 weeks from a complete information pack
The capital profile of a distribution business
Distributors buy stock ahead of demand and sell it on payment terms, which means capital is committed at both ends of the cycle simultaneously: in the warehouse as inventory and on the sales ledger as receivables. Margins are typically thinner than in manufacturing, which makes efficient use of working capital especially important.
Seasonality and supplier concentration add further pressure. A distributor bringing in a major seasonal range, or reliant on a small number of overseas suppliers, needs funding that scales with purchase order volume rather than a static facility sized on last year's turnover.
Structures that fit wholesale and distribution
Combined facilities covering stock and receivables are the most common structure, since they fund the full purchase-to-collection cycle rather than one stage in isolation. Import finance and letters of credit fund the purchase of goods from overseas suppliers, converting into a stock or trade loan once goods arrive, and into receivables finance once sold and invoiced.
Supply-chain finance programmes anchored on a large, creditworthy buyer allow a distributor's suppliers, or the distributor itself as a supplier to a larger customer, to be paid early against approved invoices at a cost reflecting the buyer's credit rating rather than the distributor's own.
What lenders scrutinise in wholesale and distribution
Stock quality and turnover speed are central to underwriting: fast-moving, branded or perishable goods generally attract higher advance rates than slow-moving or highly seasonal inventory, since the lender's fallback is the resale value of the stock itself. Supplier concentration and payment terms are also assessed, particularly where a small number of overseas suppliers dominate purchasing.
On the receivables side, customer concentration, historic dilution (credit notes, returns and disputes) and average collection period all directly affect advance rates and facility headroom. Lenders will typically require regular stock counts or independent audits for material inventory-backed lines.
Common reasons applications stall
Distributors frequently underestimate how much detail lenders require on stock composition, ageing and location, particularly where inventory sits across multiple warehouses or in transit. A second common issue is applying for a stock-only facility when the underlying cash-flow gap actually spans the receivables cycle as well, resulting in a facility that does not close the working capital gap.
High dilution rates or unresolved customer disputes, if not flagged early, tend to surface during due diligence and can materially reduce the advance rate offered.
How GFG structures distribution funding
GFG reviews the full purchase-to-collection cycle before approaching providers, ensuring the facility structure matches where cash is actually tied up rather than defaulting to a single generic product. Stock composition, supplier terms and receivables quality are assessed upfront to anticipate advance-rate discussions before formal underwriting begins.
Where a distributor's customer base includes one or more large, creditworthy buyers, GFG assesses whether a supply-chain finance programme would achieve better terms than conventional receivables finance.
Can stock be funded without receivables?
Standalone stock lines exist but are limited; combined structures achieve better advance rates.
Can a distributor combine stock and receivables funding into a single facility?
Yes, combined stock and receivables facilities, sometimes called borrowing-base facilities, are common in distribution and generally achieve better overall advance rates than two separate, uncoordinated lines. They are structured with separate advance rates against each asset class, aggregated into a single borrowing base.
How is inventory valued for advance-rate purposes?
Lenders typically advance against the lower of cost or net realisable value, discounted further for slow-moving, obsolete or highly seasonal stock. Fast-moving, branded goods with an established resale market generally achieve higher advance rates than bespoke or perishable inventory.
Is funding available for a distributor with a small number of large suppliers overseas?
Yes, though supplier concentration is factored into the risk assessment, and import finance or letters of credit are structured around the specific payment terms and reliability of those suppliers. Diversifying supplier relationships over time is generally viewed favourably by lenders.
What happens if customer disputes or credit notes are running high?
High dilution reduces the effective value of the receivables book and will lower the advance rate a lender is prepared to offer against it. Addressing the underlying causes of disputes, and disclosing dilution rates transparently during the application, generally produces better terms than having them identified during due diligence.
Can supply-chain finance help a distributor that supplies a large retailer or manufacturer?
Yes, where the buyer is large and creditworthy, a supply-chain finance programme allows the distributor to be paid early against approved invoices at a financing cost linked to the buyer's credit rating, which is often materially lower than the distributor's own borrowing cost.