Invoice Factoring for Retail Businesses: Factoring Wholesale and Consignment Receivables
How retail businesses with wholesale accounts or consignment arrangements can use invoice factoring to improve cash flow.
When Factoring Applies to Retail
Most retail transactions are paid at point of sale—customers pay when they buy. This means most retailers don't have invoices to factor. However, some retail operations generate receivables: wholesale accounts, consignment arrangements, corporate sales, and B2B transactions.
For these retailers, invoice factoring can accelerate cash flow from slow-paying accounts.
Retail B2B Scenarios
Factoring may help retailers who sell wholesale to other retailers on terms, have corporate accounts (business customers invoiced monthly), do consignment with terms (furniture, art, jewelry), or sell to government or institutional buyers.
If your business is purely consumer retail, factoring offers no benefit.
How Factoring Works
You complete a wholesale or B2B order and invoice your customer. Instead of waiting 30-60 days, you sell the invoice to a factoring company. They advance 80-90% immediately, then collect from your customer.
Example: You ship a $15,000 wholesale order to a boutique paying Net 30. The factor advances $12,750 (85%) immediately. When your customer pays, you receive $2,250 minus $375 factoring fee = $1,875.
Wholesale Operations
Retailers who also wholesale—selling to other stores, online platforms, or commercial buyers—often have significant receivables. Factoring these wholesale invoices provides working capital while waiting for payment.
This is particularly valuable when wholesale represents a growing portion of your business.
Consignment Receivables
Some retailers operate on consignment—you provide goods to another retailer who pays you when they sell. These arrangements create receivables that can be factored.
Consignment factoring requires factors comfortable with the arrangement's specific payment triggers.
Factoring Costs
Build factoring costs into your wholesale pricing if you plan to factor regularly.
| Payment Terms | Typical Fee | Annualized Cost |
|---|---|---|
| Net 30 | 2-3% | 24-36% |
| Net 45 | 2.5-3.5% | 20-28% |
| Net 60 | 3-4.5% | 18-27% |
Selective Factoring
Retailers can often factor selectively—only specific invoices or customers. This lets you factor slow-paying accounts while collecting directly from faster-paying customers.
Not all factors offer selective factoring; confirm availability when shopping.
Alternatives for Consumer Retail
If your business is primarily consumer retail without B2B receivables, these working capital solutions serve you better:
- Business lines of credit: Flexible working capital
- Inventory financing: Secured by merchandise
- SBA CAPLine: Revolving credit for seasonal needs
- Term loans: Fixed capital for specific needs
Is Factoring Right for Your Retail Business?
Factoring fits retail businesses with significant wholesale or B2B revenue, customers paying on terms, cash flow constraints from receivables, and margins that can absorb factoring costs.
If you're primarily consumer retail, other financing tools better match your cash flow patterns.
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Read more →Important Disclosure
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