The Industry - Wholesale Grocery Products
The latest AIF client wholesales products in a very competitive and sometimes trend based food sector. The customer base includes two grocery giants and various specialised grocery stores who have a low credit risk rating and the ability to pay their invoices. The grocery giants pay 60 days, have various rebates and prescribed terms, while the smaller grocery stores pay 45-70 days on 30 day EOM terms.
For this client getting paid slowly by good customers was holding back the business expansion. The business needed more cash to buy stock and ensure supply continuity. For a wholesaler operating in the retail sector the issue of managing the debtor payment cycles and have cash to meet the creditor payment cycles is cash flow critical.
When you are selling to the retail giants and the specialised grocery sector you need lots of stock, good management, strong rebate management processes, strong gross margins, sometimes good luck and definitely cashflow. Terms can vary but are generally 30-60 days EOM so getting paid quickly is not an option. As a supplier you have to finance the debtor trading terms.
So, having the cash to buy and hold stock to grow the business was the biggest challenge facing this business owner. How does this business secure cash flow?
Most clients operate in a niche area within an industry and our latest client is a wholesaler of specialised health food products and the issues they face are common in many SME industry sectors.
What is happening
This client has been operating for 10 years, sales growth had been steady, and they have always used a mix of finance options including shareholder loans, bank funding and limited amounts of equity funding.
With long trading terms cash flow is always an issue. It’s tough to be a wholesaler so the client needed a financier that was flexible about credit terms, discounts and rebate policy.
AIF provided an invoice finance facility with the ability to fund invoices 24 hours after delivery at 83% of invoice value. The cash flow problem is now solved for another SME business.
Learn more about invoice finance and factoring
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