The double gap distributors live with
A distributor often pays a supplier upfront or on short terms, holds the stock, delivers it and then waits for a retailer or business customer to pay on net-30 or longer. That leaves cash tied up at two points. Thin per-unit margins mean volume matters, which makes the gap bigger just as the business grows.
- A distributor of eco-friendly cleaning supplies adds three independent hardware stores and needs twice the stock.
- A pet products wholesaler must meet a manufacturer’s minimum order to keep its pricing.
- A regional distributor of craft supplies wins a chain of hobby stores that pays on net-45.
Use supplier terms before outside money
The cheapest funding for a distributor is often better terms with its own suppliers. Net-30 or net-60 terms from suppliers can cover much of the gap between buying and being paid. Young distributors may start on prepay, but on-time payments and growing volume are often the path to terms, and some supplier accounts report to business credit bureaus.
Ask suppliers what it takes to move from prepay to terms, and pay every invoice on time or early. Those accounts can also help you with building business credit from scratch.
| Need | Product that often fits | Watch out for |
|---|---|---|
| Stock for repeat customer orders | Starter line of credit | Customers paying later over time |
| Adding a new product line | Working capital | Slow sell-through |
| Racking, pallet jacks, forklift | Equipment financing | Buying before volume needs it |
| First delivery van | Equipment financing | Insurance and titling requirements |
Which products fit distribution
A starter line of credit matches the buy-sell-collect cycle: draw to buy stock, repay when customers pay, repeat. Working capital suits a one-time step up, such as stocking a new product line. Equipment financing covers warehouse racking, pallet jacks, a forklift or a first delivery van. Mixing them keeps each cost matched to how long it lasts.
Compare a starter business line of credit, working capital and equipment financing. Some owners also compare invoice factoring or purchase order financing as alternatives; weigh total cost and how customers are contacted.
How funders review a young distributor
Funders typically look at deposits, their consistency, existing payments, the owner’s credit and customer concentration. Because margins are thin, reviewers pay close attention to whether deposits comfortably cover supplier payments. Requirements vary by product and funder; many look at time in business, monthly revenue and credit. A spread of paying customers strengthens a short history.
Keep supplier payments, customer receipts and freight costs all flowing through one business account. That makes the purchase-to-payment cycle visible in your statements. See what funders look for in bank statements.
Growing into a warehouse, carefully
Many distributors start from a garage, a storage unit or shared space, then move into a small warehouse. The move adds rent, racking, material handling equipment, insurance and utilities. Time it to sustained volume rather than one large customer, and read the lease carefully with an attorney before signing, especially any personal guarantee.
Our guide to moving into a first commercial space covers budgeting the move. Hold off on borrowing to stock up for a customer that has not committed, or when your largest customer is paying later and later.
Frequently asked questions
How can a young distributor get supplier terms?
Suppliers often start new accounts on prepay, then extend terms after a record of on-time payments and steady volume. Ask each supplier what it requires. Providing trade references and a business credit file can help, and paying early builds goodwill.
Is one big customer a problem?
It raises risk, because a single late or lost customer can stop your cash flow. Funders may view heavy concentration cautiously. It can still work, but growing a wider base of paying customers usually improves both your options and your stability.
Can I finance a forklift or racking?
Often, through equipment financing, with the equipment usually serving as collateral. Used material handling equipment is commonly financed too, sometimes with age limits. Installation of racking may or may not be included, so ask before you sign.
What if my customers pay on net-60?
Long customer terms are a main reason distributors use a line of credit. Funders will look at whether collections still arrive consistently. Negotiating shorter terms, early-pay discounts or deposits on large orders can reduce how much you need to borrow.
Keep inventory moving
Apply once to see what your distribution business may qualify for, with no obligation.
Updated September 14, 2026 · PrimeBizFunder Funding Team