Quick answer: Distribution companies face a permanent working capital gap — they buy inventory before they sell it and wait 60–90 days for customers to pay. Accounts receivable financing, inventory financing, and purchase order financing are the core solutions for this industry. Distributors with strong B2B customer bases are well-suited for AR financing because their receivables are high-quality collateral. CPAs and industry consultants who advise distribution clients can refer these deals and earn referral fees when financing closes.
Last updated: May 2026
Distribution industry advisors
Distribution businesses are capital-intensive in a way that confuses traditional bank lenders: they show healthy revenue and a strong customer base, but their balance sheets are loaded with inventory and receivables and their cash positions are thin. This is structurally normal for distribution, and the financing products that address it — AR lines, inventory financing, and purchase order financing — are designed specifically for this pattern. Advisors who understand the distribution financing landscape can make timely, valuable referrals for clients who are growing faster than their bank will support.
Distribution companies occupy the middle of the supply chain — between manufacturers and end buyers — and that position creates a distinctive cash flow structure. On the buying side, distributors typically purchase from manufacturers or importers on net-30 payment terms, and in many categories they prepay or pay upon delivery. On the selling side, distributors sell to retailers, contractors, or commercial buyers on net-60 or net-90 terms, and in some categories like foodservice distribution or industrial supply, net-30 to net-45 is more typical.
The working capital gap is the difference between when the distributor pays its suppliers and when it collects from its customers. A $5 million annual revenue distributor selling on net-60 terms might have $600,000 to $800,000 in outstanding receivables at any given time. Add $300,000 to $500,000 in inventory on hand, and the distributor has $900,000 to $1.3 million of working capital deployed in the business — most of it not available in cash.
Growth compounds the problem. A distributor that adds a major new retail account — a regional grocery chain, a large contractor, a hospitality group — must increase inventory and begin shipping before the first invoices are even generated. The growth opportunity is real and profitable, but the near-term working capital requirement is significant. Many distributors have lost profitable growth opportunities because their bank line could not expand fast enough to support the new business.
Traditional bank lenders often struggle to finance distributors efficiently. Banks evaluate loans against the borrower's net worth and cash flow, but distribution companies frequently show thin net income (because gross margins in distribution are often 15%–25%) and low tangible net worth relative to their revenue. The balance sheet looks risky to a generalist bank lender even when the business is fundamentally sound. Alternative lenders who specialize in asset-based lending evaluate the quality of the receivables and inventory — the actual collateral — rather than the income statement, which is a better framework for distribution businesses.
Accounts receivable financing — whether structured as factoring or as a revolving AR line of credit — is the most common and most appropriate commercial finance product for distribution companies. The reason is straightforward: distribution companies tend to have high-quality B2B receivables from creditworthy retailers, contractors, or commercial buyers, and those receivables are the strongest asset on the balance sheet.
An AR financing facility for a distribution company typically works as a revolving credit line. The distributor submits its eligible receivables — invoices owed by approved customers — and the lender advances 80% to 90% of the eligible balance. As the distributor ships more product and generates new invoices, the available credit grows. As customers pay and invoices are retired, the credit is repaid and becomes available again. The line size scales automatically with the distributor's billing volume, which means the facility grows with the business without requiring the distributor to go back to the bank to renegotiate a higher credit limit.
For distributors who sell to large retail chains or commercial accounts — major buyers who are creditworthy but slow-paying — AR financing can be transformative. A distributor selling to a regional grocery chain on net-75 terms might have $500,000 in outstanding invoices to that one customer. Converting those invoices to immediate cash lets the distributor pay its own suppliers on time, take advantage of early payment discounts, and fund the next order cycle without strain.
The key eligibility criteria for distribution AR financing: the customers being billed must be creditworthy businesses (not consumers), invoices must be for delivered goods (not future orders), and the receivables should be relatively clean — not heavily aged or disputed. A distribution company with a customer base of established retailers, commercial contractors, or business-to-business buyers typically has strong AR financing eligibility.
Factoring is a simpler structure than a revolving AR line — the distributor sells individual invoices to the factor, which then collects from the customers directly. This can work well for smaller distributors who want a simple facility without the administrative complexity of a revolving line. For larger distributors ($2 million or more in annual sales), a revolving AR line managed by an asset-based lender is typically a better fit because it provides more flexibility and is more cost-efficient at higher volumes.
Inventory financing — loans secured by the distributor's on-hand inventory — is a logical complement to AR financing for distributors who carry significant inventory. While AR financing addresses the receivables side of the balance sheet, inventory financing addresses the other major working capital asset.
Inventory financing advance rates are typically lower than AR advance rates — 50% to 70% of inventory value rather than 80% to 90% of receivables — because inventory is less liquid than an invoice. A receivable will be collected in 30 to 90 days. Inventory could sit on the shelf longer, lose value, or become obsolete. Commodity inventory (food products, industrial supplies, raw materials) is more financeable than specialty or custom inventory that has limited buyer appeal outside the specific customer relationship.
For seasonal distributors — those that build large inventory positions before peak demand periods — inventory financing can bridge the gap between the purchase of inventory and the collection of customer payments. A food distributor building inventory for the holiday season, a hardware distributor stocking up before spring construction season, or a beverages distributor loading warehouse space before summer peak all represent seasonal inventory financing use cases.
Most asset-based lenders who provide AR financing to distributors will also consider inventory financing as part of a combined facility, where both the receivables and the inventory serve as collateral for a single revolving line. This combined structure is often the most efficient for distributors because it maximizes the available credit against the full working capital asset base.
Purchase order financing is a specialized product that fills a specific gap: a distributor has a confirmed customer order but lacks the capital to purchase the inventory needed to fulfill it. The PO lender advances funds directly to the distributor's supplier, enabling the purchase. The distributor ships to the customer, invoices for the order, and when the customer pays, the PO lender is repaid from the invoice proceeds.
PO financing is most commonly used by distributors who are landing significant new accounts, handling one-time large orders, or experiencing growth that outpaces their working capital capacity. A specialty food distributor landing a national account for the first time, a safety supply distributor winning a large construction project contract, or a consumer goods distributor receiving a one-time holiday promotion order from a major retailer — all of these are PO financing situations.
PO financing is more expensive than AR financing or working capital lines because the lender is taking on supplier payment risk and pre-delivery execution risk in addition to customer payment risk. Fees typically run 2% to 5% of the PO value per 30-day period, which is meaningful for large transactions. But for a distributor whose alternative is turning down a profitable large order because of capital constraints, the cost of PO financing is often well worth paying.
For advisors making a PO financing referral, the key information to include is the confirmed customer order (purchase order or equivalent), the supplier from whom the distributor will purchase, the approximate cost of the inventory purchase, the expected invoice amount to the customer, and the expected payment timeline. This gives the lender the information needed to evaluate the deal quickly.
Distribution company lenders — particularly asset-based lenders who specialize in this sector — evaluate deals differently than generalist bank lenders. Understanding their framework helps advisors frame referrals effectively:
The quality and creditworthiness of the distributor's customers determines how much the lender will advance against receivables. Large, established retailers and commercial buyers support high advance rates. Concentrated exposure to one or two customers increases risk. A diverse customer base of creditworthy buyers is the strongest lending scenario.
Lenders review the distributor's AR aging report in detail. Current receivables (under 30 days) and slow-but-collectable receivables (30–90 days) are eligible. Receivables over 90 days are typically ineligible for advance. Heavy concentration of aged receivables signals a collection problem that needs explanation before financing can proceed.
For inventory financing, lenders evaluate whether the inventory is commodity (highly financeable) or specialty (lower advance rate). Inventory turnover — how quickly inventory sells — matters significantly. Slow-turning inventory suggests demand or pricing issues. Fast-turning inventory in a stable category is the strongest collateral.
Lenders want to understand the distributor's supplier relationships — are purchase terms stable? Are there supply concentration risks? A distributor that sources 90% of its product from one manufacturer is exposed if that relationship changes. Diversified, established supplier relationships reduce supply-side risk.
Distribution gross margins are typically 15%–30% depending on category. Margins below 12%–15% can make it difficult to service financing costs and cover operating expenses simultaneously. Lenders evaluate whether the distributor's margin structure supports the cost of the financing being requested.
Two to three years of revenue history showing stability or growth is the baseline requirement. Distributors with declining revenue need a credible explanation (lost account, product category exit, planned transition) rather than a presentation of the trend without context. CPAs who help clients present their financial story clearly add significant value here.
| Financing type | Typical facility size | Best use case | Key collateral |
|---|---|---|---|
| AR financing / factoring | $250,000–$10,000,000+ | Ongoing working capital against slow-paying B2B invoices | B2B receivables from creditworthy buyers |
| Inventory financing | $100,000–$5,000,000 | Seasonal inventory buildup, commodity stock financing | On-hand inventory at cost value |
| Combined AR + inventory ABL | $500,000–$15,000,000 | Larger distributors with both AR and inventory needs | Combined receivables and inventory pool |
| Purchase order financing | $50,000–$5,000,000 per order | Large new orders, first-time accounts, seasonal spikes | Confirmed customer purchase order |
| Revenue-based working capital | $50,000–$500,000 | General working capital, operational needs | Business revenue / bank deposits |
CPA firms with distribution clients are the most natural referral partner for distribution financing. The distribution balance sheet pattern — heavy receivables and inventory, thin cash — is immediately visible to any CPA reviewing the financials. When a distribution client mentions that they had to turn down a large order because of cash constraints, or that they are perpetually behind on vendor payments despite strong revenue, the CPA already has everything needed to make a useful financing referral. The introduction is simple, the need is clear, and the documentation (financial statements, AR aging, inventory list) is already in the CPA's hands.
Industry consultants who advise distributors on operations, logistics, technology, or sales are regularly inside distribution businesses in a way that reveals capital needs. A logistics consultant helping a food distributor optimize its route structure will see whether the company has the cash to invest in the recommended improvements. An operations consultant helping a hardware distributor streamline its warehouse will encounter whether inventory financing is available to support the reorganization. These operational conversations frequently surface capital needs that a financing referral can address.
Trade association contacts for distribution verticals — food distribution, industrial supply, janitorial distribution, safety supplies — are another referral-rich environment. Distribution industry associations often have members who are struggling with the exact working capital dynamics described here. An advisor who is active in an industry association and has a known financing referral relationship is a valued resource to fellow members.
Accountants and bookkeepers who process distribution company books on a monthly basis see the cash flow timing problems in real time — the month when a large vendor payment was delayed because the customer payment hadn't cleared, the quarter when inventory ballooned because a seasonal order came in larger than expected. These recurring signals are referral triggers that advisors who pay attention can act on.
The distribution financing referral is often one of the cleanest referrals to make: the need is structural, the products are well-matched to the problem, and the documentation set is relatively standard. A CPA or consultant who knows the business can complete a referral in 15 minutes and generate a meaningful fee when the facility closes.
FAQ
Distributors buy inventory from suppliers on net-30 terms and sell to customers on net-60 to net-90 terms. The gap between payment out and payment in creates a permanent working capital requirement that grows with revenue. A $5M distributor may have $600K–$1.3M of working capital tied up in receivables and inventory at all times.
AR financing advances 80%–90% of eligible receivables against a revolving credit facility. As the distributor ships and invoices, the available credit grows. As customers pay, the credit is repaid and becomes available again. The line scales with billing volume automatically — unlike a bank line that requires renegotiation to grow.
PO financing advances funds to pay a distributor's supplier directly when the distributor has a large confirmed customer order but lacks the capital to purchase the inventory. The lender is repaid when the customer pays the invoice. It is more expensive than AR financing but enables profitable orders that would otherwise be declined due to capital constraints.
Lenders evaluate customer base quality and creditworthiness, receivables aging (current vs. over 90 days), inventory type and turnover speed, supplier concentration, gross margin, and 2–3 years of revenue history. Asset-based lenders focus on collateral quality rather than income statement metrics, which is a better fit for distribution economics.
CPA firms with distribution clients are the most natural source — they see the balance sheet patterns that signal the need. Industry consultants, logistics advisors, and operations consultants who work inside distribution businesses regularly surface capital needs. Trade association members in distribution verticals also represent a referral-rich environment.
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