Financing Open Credit Sales

Your supplier requires payment in advance. Production time is 30 days. Shipping is another 60. Then your customer requires n30 terms after receipt of goods. You will be out of cash for 120 days, at a bare minimum. How can you bridge that gap?

There are several options and often a combination works best. Trade Confidence helps its clients find the right solution(s) to meet its needs. Let’s look at some

Using your own cash

If you have the reserves, this is the least expensive option, but consider the opportunity costs of not deploying that cash elsewhere.

Giving Early Pay Discounts

If you offer 2%10 n30, your customer takes a whopping 2% discount simply to pay in 10 days instead of 30. Sacrificing 2% for just 20 days of payment advancement is generally a very expensive means of advancing cash flow.

Line of credit

If your company is eligible for a traditional line of credit, this can be very cost effective. We can connect you to trusted lenders to see if you qualify.

Taking Early Pay Discounts

Conversely, if a supplier is offering 2%10 n30, you should take it nearly every time, even if you do not have the cash. You will almost always be able to borrow at an interest expense that is paid for by the 2% discount. If not possible through your banking line, ask us how.

Commercial Credit Cards

If a vendor allows you to pay with card with no / minimal surcharge, take advantage of the extra 30 days of float and cash back rewards. We help our clients find cards that:

Require no personal guaranty or personal credit check
Offer 1.5-2.5% cash back rewards
Integrate with Netsuite, MS Dynamics, and other ERPs for automated payment reconciliation

Factoring

In a factoring arrangement, you receive a substantial payment advancement at the date of supply. The factor invoices your customers, collects from them on or near the due date, and remits the remainder less their fee. Recourse vs. non-recourse factoring relates to who ultimately retains the risk of buyer default. In recourse factoring, the factor can claw back the advance payment in the event the buyer does not pay.

Accepting credit card payments

If you accept credit cards, you are advanced payment right away, but have to pay a sizable 2-3% merchant fee. They also introduce some risk – the customer can raise disputes after you consider the transaction closed and paid for, resulting in the credit card company clawing back your advance.

PO Financing

For no gap in cash flow at all, PO financing is an option. These companies pay your supplier on your behalf. After you deliver product to your customer and invoice them, your customer remits payment to a joint account owned by you and the PO financing company on the invoice due date. The PO financing company withholds their interest fee based on the amount of days their capital was extended and then releases the balance to you.

Trade Confidence partners with several companies in this arena including fintechs that offer hybrid solutions. Get in touch and let’s talk through your scenario to figure out the best path forward.