Working capital financing in Woodland, CA bridges the weeks between paying staff and suppliers and collecting from customers on net-30 to net-60 terms. A wholesaler or a shop can cover that gap with a working capital loan, a business line of credit or inventory financing; which one fits turns on whether the gap comes back every month. The examples below use invented figures.
A distributor pays wages and suppliers before customers pay their invoices. This article sizes that gap with invented figures and sets a working capital loan, a credit line and inventory financing against it.
Payroll while customer invoices are out
Wholesale employer establishments in Yolo County, CA paid $682.8 million in annual payroll in 2023, the total across all 294 of them in County Business Patterns. Just over a third of them, 104, had fewer than five people on staff, and for a small wholesaler one late customer can decide whether the next payroll clears.
Illustration only, invented figures: a packaging and janitorial supply distributor runs an $18,600 payroll every other Friday and ships a $64,000 order to a regional customer on net-45 terms. A 45-day wait holds three paydays or four, depending on the calendar, so $55,800 to $74,400 of wages goes out before that $64,000 comes in.
The order is profitable on paper the day it ships. The cash problem is only the timing, and timing is what working capital financing is priced to cover.
Supplier terms and inventory timing
Supplier terms work in the other direction. When a supplier gives net-30, the distributor holds the stock for a month before paying for it; when the goods sell before that bill is due, part of the gap closes on its own.
| Step | Days | What happens |
|---|---|---|
| Stock on the shelf | 25 | A $42,000 purchase sits in the warehouse until it ships |
| Customer terms | 45 | The customer pays on day 45 after delivery |
| Supplier terms | 30 | The supplier bill falls due on day 30 after the stock arrives |
| Cash tied up | 40 | 25 + 45 - 30 days with the money spent and not yet collected |
Forty days is the stretch to finance. Every day of extra supplier terms, or every day a customer pays sooner, takes one day off it; every day the stock waits on the shelf adds one. A credit line drawn for those 40 days, then cleared when the customer pays, matches the cycle closely.
Working capital loan, credit line or inventory financing?
Illustration only, invented figures: the same distributor needs $40,000 for 45 days. Three ways to carry it:
| Option | How the money arrives | Cost on these figures |
|---|---|---|
| Business line of credit | Draw $40,000, pay it back when the invoice clears | 12% a year for 45 days: $591.78 of interest |
| Working capital loan | $40,000 at once, fixed monthly payments | Twelve payments of $3,610.33 at 15% a year; interest $3,323.96 |
| Inventory financing | An advance of 70% of the $42,000 stock, or $29,400 | Interest at 14% a year over 45 days: $507.45 |
For one 45-day gap the line of credit costs $2,732.18 less in interest than the loan on these figures, because the loan keeps the money out for a full year. A working capital loan earns its place when the need lasts, such as staffing up for a new account. Inventory financing ties the money to the stock itself and covers only the advanced share. Fees are left out of all three; compare the rate, fees and total cost of any real offer.
Records a distributor gathers before applying
A partner can ask for some or all of these records before it reviews a distributor:
- Receivables aging: each customer's open invoices, sorted by age
- Accounts payable aging and the terms each main supplier gives
- Recent business bank statements
- A customer list with each large account's share of sales
- An inventory report with values and how long stock has been held
- Two years of filed returns and a current-year income statement
- Any current loans, leases or advances, with balances
For a distributor the receivables aging is the record to get right first, because it lists the cash that should arrive next. A partner may look closely at concentration: if one customer owes half the receivables, that customer's payment habits shape the whole review.
By Timbershore Lending Group · Updated
