Anyone who is new to business lending might be confused when a company like United Capital Source claims to offer “long-term” solutions. This refers to the complete opposite of what most other business lenders do. They essentially put a band-aid on a broken limb. For businesses that are naturally prone to various cash flow problems, giving them a little extra funding and then calling it a day is just a temporary fix. There’s simply no reason to believe the business won’t run into the same problem again. A “long-term” solution, on the other hand, facilitates the introduction of a highly-efficient business model. The funding we supply is one of many ingredients for putting that plan into action.
In the wholesale industry, success doesn’t just come down to having more than enough capital. You need to know how to spend it, when to spend it, and which business practices are most important for keeping that money in your pocket.
Turn Your Inventory The Right Way
Inventory is a major headache for many wholesalers because it’s very easy to buy too much. Sometimes, you might think you’ve bought the right amount but it doesn’t turn quickly enough. Countless factors, like inaccurate forecasting of demand or errors on behalf of your business partners, can result in potential working capital sitting on your shelves. It’s also difficult to predict how certain products will perform if you only buy them when you can afford it, even if this is several months before they are supposed to be sold.
The longer you go without selling the inventory, the more damage it deals to your profit margins. Now, most companies would just sell the order at a loss so it won’t bother them anymore. Others might just let the mistake “clean itself up” but during that period, your resources will be severely limited. You could miss out on precious opportunities or lose relevance. Supplies will end up costing more because you can’t pay upfront for discounts.
Forecasting With 100% Accuracy
A working capital loan, on the other hand, can solve this dilemma in a number of ways. In addition to making up for the cash you lost with the inventory, you could use the funds to invest in preventing similar mistakes in the future. If the problem is forecasting, you might want to consider investing in technological tools that provide a clear picture of demand. Many wholesalers have reportedly seen vast improvements in accuracy with management software like SAP Business One.
This could cost thousands to implement per year but some of our working capital loans do not require significant payments in the first few months after funding is distributed. The same terms apply to scenarios like buying more/better equipment to increase efficiency, or pre-paying items for discounts. You would make your larges payments when the equipment or items are actually being put to use and/or helping you do more business.
Receivables You Can Actually Use
A popular type of working capital loan for wholesalers is accounts receivable factoring. No matter how well your sales are doing, you will run into cash flow crunches if clients do not pay on a schedule that gives you sufficient weekly and monthly revenue. But the only companies that can get clients to play by their rules are heavily capitalized, as opposed to being desperate for cash. With accounts receivable factoring, the business lender purchases unpaid invoices for a discount and pays you upfront. Your business cycle essentially goes from weeks or months to just a few days, allowing you to cover expenses or make a sale right away.
The only downside of accounts receivable factoring is the small portion of revenue you lose but this is easily overshadowed by the benefits of literally having cash on hand at all times. You may have heard that accounts receivable factoring is a “last resort” for dying businesses, or that your clients will leave when they find out you’ve sold their invoice. This couldn’t be further from the truth, especially if you work with a company like UCS. Your client will not find out the invoice was sold, and anyone who doesn’t understand the value of paying a little money to save a lot of money isn’t worth listening to.
What You Can Do With A New Business Cycle
With more money in your pocket, you can negotiate more convenient terms with suppliers, like making payments on 30 or 60-day intervals as opposed to paying upfront. You can be selective with whom you work with, rather than buying from a single vendor or small group solely because they offer the lowest prices. Accounts receivable factoring lets you work with whomever you want. Also, it might be best for you to take out a working capital loan to order inventory shortly before it is sold. Only when a steep discount is offered should you order several months in advance.
Even though we usually encourage business lenders to take out multiple rounds of funding, borrowing money whenever you need to fill in a gap is not a smart idea. You must develop a plan that decreases the likelihood of financial pinches, which is ultimately more cost-effective than just constantly reacting to reoccurring issues. After all, our success is based on the success of our clients, and success means using your funding to grow, not just scrape by.