For distributors · Explainer
What is distributor finance, and what do I owe under it?
Distributor finance is a credit facility: a financier pays your anchor for your stock order, and you repay the financed amount plus a financing charge on the repayment date, whether or not the stock has sold.
In short
- It is a credit facility: you repay each drawing, plus a financing charge, on its repayment date.
- Each stock order you finance is its own drawing, with its own charge and its own date.
- The date does not move if the stock has not sold, so size each drawing to what you can sell.
It is a credit facility
Treat it as credit and read the terms as credit. You consent to your financier reporting the facility and your repayment conduct to the credit reference bureaux, and that consent is a term of the agreement rather than something decided later. Repaying on time builds your record; missing a payment damages it.
How a drawing works
Your financier sets a limit for you within your anchor’s program. Distributor finance is drawn and repaid rather than taken once, so each stock order you finance is its own drawing, with its own financed amount, its own financing charge and its own repayment date, all stated when you confirm.
Once the financier has settled the anchor’s invoice for that order, the obligation to pay the financier is yours. How the limit is drawn, reviewed and redrawn in your program is set out in your own agreement.
What it costs
A financing charge on each drawing, stated at confirmation and repaid together with the financed amount on the repayment date. Under the documented terms you see the amount financed, the total repayable, the due date and the effective annualized cost before you confirm.
What secures it
Under the documented terms distributor finance ordinarily takes security. The typical package is a registrable charge over the financed goods, reinforced by your anchor’s stop-supply and, where elected, its buy-back. What is actually taken in your program is set out in your financier’s agreement: ask before you draw, because it differs by program.
If you do not repay
You are pursued for the money under the terms you signed. On a conventional facility your conduct is reported to the credit reference bureaux and it damages your record there. Security taken over the facility can be enforced. And your anchor suspends further credit supply until you are current again, which stops the stock that your business runs on.
The sentence to remember
The repayment date does not move because the stock has not sold. Selling the stock is how you intend to have the cash; it is not a condition of owing it. Size every drawing to what you can turn into cash before that date, and read the product page for what secures the facility and who can offer it.
The flow, step by step
- Money moves
- A document moves
- Goods move
- 1.Distributor: places a stock order with the anchor. (a document moves to anchor.)
- 2.Distributor: requests financing for that order, within the limit the financier has set within the anchor’s program, and confirms the disclosed terms. (a document moves to financier.)The financed amount, the financing charge and the repayment date are stated at confirmation.
- 3.Anchor: delivers the stock and invoices for it. (goods move to distributor.)
- 4.Financier: settles the anchor’s invoice for the stock. (money moves to anchor.)From this point the obligation to pay the financier is yours.
- 5.Distributor: pays the financier the financed amount plus the financing charge on the repayment date, whether or not the stock has sold. (money moves to financier.)
Who owes the money: You, the distributor. You repay the financier on the agreed date, whether or not the stock has sold.
Next in this track
How do Murabaha and Wakala work in practice when I finance stock?