The structural problem
A distributor typically pays suppliers on short terms, holds stock for weeks, then sells on credit terms of thirty to sixty days. The result is a cash cycle that can stretch beyond ninety days while margin sits in the low single digits.
Growth makes this worse rather than better. Every additional pound of sales absorbs cash before it returns any, which is why profitable distributors run out of cash more often than unprofitable ones fail.
The facilities that fit
Receivables finance covers the sales side and is the foundation of most distribution funding structures. Stock or inventory finance covers the holding period, and trade or import finance covers the supplier payment where goods come from overseas.
Funded together as one structure they cover the whole cycle. Funded separately from different providers they tend to conflict on security, which is why an assembled package usually beats a collection of individual facilities.
What lenders scrutinise
Stock turn, dilution and customer concentration. Slow moving inventory is discounted heavily or excluded. High credit note activity reduces advance rates because it signals disputes. One customer at forty per cent of the ledger will attract a concentration cap.
Supplier terms also matter. A distributor with extended terms from a strong supplier has already secured part of its working capital for nothing, and lenders will price the remainder more keenly as a result.
Practical improvements before you apply
Clear old stock even at reduced margin, resolve aged disputes, and tighten collections. Each of those increases eligible collateral directly and therefore increases what you can borrow.
Prepare a stock ageing report and a debtor ageing report in a consistent format. Lenders in this sector make decisions from those two documents faster than from anything else you send.
Frequently asked questions
Can stock finance be arranged on its own?
Rarely. It is almost always provided alongside receivables finance so the lender is funded through the whole cycle.
What advance rate applies to stock?
Commonly thirty to sixty per cent of cost, depending on saleability, storage control and independent valuation.
Does seasonality cause a problem?
No, provided the facility is sized to the peak rather than the average. Seasonal profiles are normal in this sector.
Last reviewed: 2026-09-06