How much working capital does a distribution business need?

Compute the cash conversion cycle — days of inventory plus days sales outstanding minus days payable — and multiply by daily cost of goods. A distributor running a 75-day cycle on $10M of annual COGS carries roughly $2M of permanent working capital, before growth or seasonality. That figure, not a percentage-of-revenue rule, is what the facility should be sized against.

Can I borrow against inventory and receivables in one facility?

Yes — that is the standard asset-based structure for distribution: one revolving borrowing base combining receivables at typically 80 to 90 percent advance with inventory at appraisal-based rates. It produces more availability at better pricing than separate products, and capacity grows automatically as both pools grow, which is precisely what a scaling distributor needs.

What do lenders look for in a distribution book?

On the receivables side: customer credit quality, concentration, and dilution from returns and chargebacks. On the inventory side: turn rates, SKU records that tie to counts, and how the stock would sell in liquidation — commodity goods advance better than branded long-tail. Clean perpetual inventory systems are collateral in themselves; they routinely move advance rates more than negotiation does.

How do importers finance the deposit-to-delivery gap?

Against confirmed customer orders: purchase order financing, where the funder pays the overseas supplier or issues a letter of credit. Against stock positions: inventory facilities or a seasonal line, sized to the buying calendar. The distinction that decides everything is confirmed versus forecast demand — different underwriting, different pricing, different lenders.

Is factoring or a bank line better for a distributor?

Sequenced, not either-or. Bank lines are the cheapest capital but are sized to history and often too small for a growing cycle. Factoring funds fast and scales with billing but costs more per dollar. The common path runs factoring or an inventory facility in the growth years, then a combined asset-based facility — sometimes alongside the bank — once volume and reporting justify it.

Industry capital

Working capital for distributors: the business of financing the gap between two sets of terms.

A distributor’s entire economic function is holding inventory between a supplier who wants payment now and a customer who pays in 60 days. That gap — weeks of stock plus weeks of receivables, financed on wholesale margins — is the defining capital problem of the trade, and the one every facility should be built around.

Reviewed by Ryan Hurley, Co-Founder & CEO

Working capital for distributors and wholesalers funds the cash conversion cycle: inventory held from supplier payment to sale, plus receivables from sale to collection, minus whatever supplier terms offset. Because distributors carry both strong receivables and substantial inventory, the fitting structure is usually a combined facility — an asset-based line borrowing against both — supplemented by purchase order financing for outsized orders and import timing.

The cycle

90+ days, cash out to cash in

Supplier deposit, transit, warehouse, sale on net-45, collection. Every dollar of revenue rides that loop — and every dollar of growth adds permanent capital to it.

The margin math

Thin margins, big balances

Wholesale margins mean the capital carried per dollar of profit is higher than almost any other business model. Financing cost discipline is not optional; it is the P&L.

The advantage

Two collateral pools

Receivables that advance at 80–90% and inventory that appraises — distributors borrow better than they think, when the facility is built to see both.

The arithmetic

Your cash conversion cycle is a number. Compute it before financing it.

The distributor’s master formula: days of inventory on hand, plus days sales outstanding, minus days payable outstanding. A book that holds 60 days of stock, collects in 45, and pays suppliers in 30 is carrying 75 days of costs in cash at all times — and at a 75-day cycle, every $1M of annual cost of goods requires roughly $200K of permanent working capital just to exist. Growth multiplies it: the $45M food-and-beverage distributor in our case study ran a 90-plus-day cycle through seasonal spikes, which is exactly why the facility was sized at $3.2M across inventory and receivables together.

Importers carry a longer loop: deposits at order, balance at shipment, weeks on the water, customs — capital committed months before the goods can even be sold. That front end is a purchase order financing problem when it is against confirmed customer demand, and an inventory financing problem when it is a stock position; the full decision map is on the inventory and PO page.

Warehousing operations — 3PLs and distributors running fulfillment for others — share the receivables half of the cycle without owning the stock: their working capital problem is payroll and facilities against net-30-to-60 invoices, which points at receivables financing rather than inventory structures.

The structures

The distribution capital stack, in the order to build it.

1. A combined asset-based facility — the destination structure: one borrowing base across receivables (typically 80–90% advance) and inventory (appraisal-based), recalculated as both grow. For distributors past roughly $1M in working-capital assets, it usually beats every combination of point products on both availability and cost.
2. Receivables financing — the faster on-ramp: advances against invoices to retailers, institutions, and commercial accounts within days. Distributors often start here and graduate to the combined facility as reporting discipline matures.
3. Inventory financing — for stock-heavy moments: seasonal builds, opportunistic buys at supplier discounts, new-line launches. Availability runs off net orderly liquidation value, which rewards clean records and fast-turning SKUs.
4. PO financing — for the order bigger than the balance sheet: the funder pays your supplier against confirmed customer demand. Margin is the gate; below roughly 20 percent gross it rarely carries its own cost.
5. Supplier-terms negotiation — the free layer everyone skips: early-payment discounts captured with financed cash (a 2%/10 net 30 discount is a very expensive discount to decline), volume terms, and consignment arrangements that take stock off your cycle entirely.

What generally does not fit: fixed term loans for a scaling cycle (the loan stays flat while the cycle grows) and daily-debit advances against thin wholesale margins — the fastest way to hand the year’s profit to a funder. If advances have already stacked, the fleet-and-receivables version of a consolidation is the exit.

Bring three reports

A/R aging, inventory by SKU, supplier terms — the facility designs itself from there.

Those three documents contain your cycle, your collateral, and your gap. Fifteen minutes across them tells us facility type, realistic advance rates, and what the structure should cost against the margin it protects.

518.520.4552

Direct line, weekdays. The reports can follow the conversation.

Send the details instead

Questions we are asked

Distribution working capital, answered directly.

How much working capital does a distribution business need?: Compute the cash conversion cycle — days of inventory plus days sales outstanding minus days payable — and multiply by daily cost of goods. A distributor running a 75-day cycle on $10M of annual COGS carries roughly $2M of permanent working capital, before growth or seasonality. That figure, not a percentage-of-revenue rule, is what the facility should be sized against.
Can I borrow against inventory and receivables in one facility?: Yes — that is the standard asset-based structure for distribution: one revolving borrowing base combining receivables at typically 80 to 90 percent advance with inventory at appraisal-based rates. It produces more availability at better pricing than separate products, and capacity grows automatically as both pools grow, which is precisely what a scaling distributor needs.
What do lenders look for in a distribution book?: On the receivables side: customer credit quality, concentration, and dilution from returns and chargebacks. On the inventory side: turn rates, SKU records that tie to counts, and how the stock would sell in liquidation — commodity goods advance better than branded long-tail. Clean perpetual inventory systems are collateral in themselves; they routinely move advance rates more than negotiation does.
How do importers finance the deposit-to-delivery gap?: Against confirmed customer orders: purchase order financing, where the funder pays the overseas supplier or issues a letter of credit. Against stock positions: inventory facilities or a seasonal line, sized to the buying calendar. The distinction that decides everything is confirmed versus forecast demand — different underwriting, different pricing, different lenders.
Is factoring or a bank line better for a distributor?: Sequenced, not either-or. Bank lines are the cheapest capital but are sized to history and often too small for a growing cycle. Factoring funds fast and scales with billing but costs more per dollar. The common path runs factoring or an inventory facility in the growth years, then a combined asset-based facility — sometimes alongside the bank — once volume and reporting justify it.

Distribution capital resources.

Case Study

Finance the cycle once, properly — and let growth ride it.

Aging, inventory report, supplier terms: one conversation converts them into a structure sized to your actual gap.

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