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Maximizing Profitability: ABL Strategies for Wholesale Distributors

Last Modified : Jul 15, 2024

Fact-checked by: Bruce Sayer

Wholesale distributors have historically focused on operational excellence to gain a competitive advantage and maximize profitability. However, in today’s dynamic economy, much more is needed.

The disruptions and social changes that have evolved since the global pandemic have significantly altered the distribution landscape. A reset in strategic direction is required to create a competitive advantage by managing change faster and more effectively. Distribution leaders are developing core competencies in change management while competitors struggle with outdated and ineffective strategies. More stable yet flexible financial structures are needed to facilitate agility, support operational efficiencies, outperform the competition, and maximize profitability.

This article discusses the challenges impacting wholesale distributors in 2024 and how these businesses must leverage agility and innovation to overcome obstacles. Keep reading to learn how asset-based lending (ABL) helps create more stable yet flexible financial structures to support change and maximize profitability.

The challenges

In 2024, distributors and wholesalers in the US are facing significant economic changes driven by factors like inflation, supply chain disruptions, geopolitical tensions, and labor shortages. In addition to these economic changes, new consumer trends are emerging. For example, today’s consumers are more environmentally conscious, increasing the demand for eco-friendly practices and product traceability. Meanwhile, inflation and pricing pressures stemming from rising costs of raw materials, transportation, and labor are driving up prices and squeezing profit margins at the manufacturing, wholesale, and retail levels.

For the foreseeable future, these trends will continue to impact our world, resulting in wholesalers having to ride waves of rapid transformation and disruption. As a result, it’s no longer a question of whether things will change – they are and will continue to do so. The question now is how your business will adapt.

Growth opportunities

Despite the challenges and uncertainties in today’s markets, 2024 offers growth opportunities. Consumer spending, a significant driver of growth in the wholesale distribution market, showed a slight moderation in January. However, the overall trend points towards continued increases throughout the year, albeit slower than in 2023.

Overall, the industry is experiencing steady growth. The forecasted growth can be attributed to several factors, including an increasing focus on sustainability, rising demand for health and wellness products, expanding product offerings, and regulatory shifts.

Agility and innovation

Today, with so many external forces at play, wholesale distributors must be ready and willing to move with the market and keep at the forefront of change as it occurs. Accomplishing this will require an increasing focus on agility and innovation.  A commitment to agility can enable businesses to respond to market shifts more quickly while embracing innovation which will give wholesalers the tools to support a more agile business model. Distributors who embrace and keep pace with advancing AI technologies, such as predictive analytics, can optimize operations, inventory, and marketing strategies to align with changing consumer trends. Digital dashboards offer real-time data-driven insights to monitor the effects of change. Using this information resource to guide strategic decisions helps progressive distributors develop novel solutions that differentiate them from competitors.

Underpinning this ability to respond to change is the need for a stable and flexible financial structure that can withstand the economic uncertainties of 2024 and beyond. Flexible financing allows distributors to invest in innovation, adapt to changing market conditions, and maintain a sustainable advantage to enhance bottom-line results.

Stable and flexible financial structures

For many wholesale distributors, business financing is essential to maintain stable financial structures. However, recent changes in federal regulations and the banking system have tightened access to the traditional credit market. Many formerly creditworthy businesses are now being restricted to, or worse, ineligible for credit. With limited financial flexibility, these companies cannot efficiently adapt strategies and allocate resources to seize emerging opportunities and enhance their competitive edge.

In response, a more stable and flexible source of business financing may be needed to sustain operations, enhance agility, and support innovation.

Asset-based lending – a more stable and flexible source of business financing

Asset-based lending (ABL) has become a leading financing solution for undercapitalized companies. Whether businesses suffer from financial distress or growth challenges, need to invest in efficiencies, or need facility expansion, ABL provides up to $50M in credit to companies with inventory, accounts receivable, equipment, or real estate assets to offer as collateral.

ABL offers businesses a flexible financing solution by leveraging various assets as collateral to establish a credit line. This flexible source of business financing features minimal loan covenants, expandable credit limits, and the ability to combine with other financing options to maximize access to capital.

ABL strategies for wholesale distributors

ABL financing can be used in many ways and for many purposes to strengthen a company’s financial position. The following are a few of the strategies commonly employed by wholesale distributors to utilize asset-based lending to its best advantage:

  1. Working Capital Support: Asset-based lending can provide businesses with the working capital to support day-to-day operations, finance inventory purchases, manage seasonal fluctuations, or cover unexpected expenses. By improving liquidity and cash flow, businesses can better manage their operational needs and pursue growth opportunities.
  2. Funding Growth Initiatives: Asset-based lending can fund various growth initiatives, such as expanding into new markets, launching new products or services, acquiring competitors or complementary businesses, or investing in research and development.
  3. Bridge Financing: Asset-based lending can serve as bridge financing to facilitate significant transactions or strategic initiatives. For example, businesses can use asset-based loans to bridge the gap between revenue generation and the need for capital investment in growth projects or acquisitions.
  4. Mergers and Acquisitions: Asset-based lending can be beneficial for financing mergers and acquisitions (M&A) activities. Businesses can use asset-based loans to finance the purchase of target companies or to support the integration process post-acquisition. The acquired company’s assets can also be used to secure additional financing for the transaction.
  5. Debt Refinancing: Asset-based lending can refinance existing debt, providing businesses with more favorable terms, lower interest rates, or extended repayment periods. By refinancing debt with asset-based loans, companies can improve their financial flexibility, reduce debt service costs, and free up capital for growth initiatives.
  6. Capital Expenditures: Asset-based lending can finance capital expenditures, such as purchasing new equipment, machinery, or technology essential for expanding production capacity, improving operational efficiency, or enhancing product quality. By investing in capital assets, businesses can position themselves for long-term growth and competitiveness.
  7. Expansion: Asset-based lending can support businesses looking to expand nationally or internationally by providing the necessary capital for market entry, establishing local operations, acquiring foreign assets, or financing export activities. Asset-based lenders may offer specialized financing solutions tailored to the unique needs of business expansion.

Conclusion

The wholesale distribution sector is experiencing a profound shift fueled by economic uncertainty, technological advancements, and social transformations. Key among these are changing consumer trends, the integration of AI technologies, and the emphasis on personalized services and sustainability. These trends are expected to persist, driving wholesalers and distributors to respond to evolving consumer demands and supply chain requirements. Consequently, wholesalers must embrace agility and innovation to adapt to industry dynamics, outperform the competition, and maximize profitability.

Stable yet flexible financial structures are needed to support operational efficiencies, enable rapid response to change, and fuel innovation. Asset-based lending (ABL) provides flexible business financing to optimize credit utilization and access to capital. Work with a leading and reputable ABL lender experienced in your industry. An experienced lender has the knowledge and expertise to help maximize profitability with ABL strategies for wholesale distributors.

Contact us today to request a free financing consultation and see what we can do for your business.

Key Takeaways

  • Disruptions and social changes have significantly altered the distribution landscape. A reset in strategic direction is required to create a competitive advantage by managing change faster and more effectively.
  • Stable yet flexible financial structures are needed to facilitate agility, support operational efficiencies, outperform the competition, and maximize profitability.
  • Asset-based lending (ABL) provides flexible business financing to optimize credit utilization and access to capital.
  • Learn strategies for using ABL financing to strengthen a distribution company’s financial position and maximize profitability.

 

ABOUT eCapital

Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.

We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.

Matt Debernardo Headshot

Matt DeBernardo, SVP, Business Development Officer, is an accomplished finance professional with over 15 years of experience in alternative finance. In his role, he is responsible for structuring creative, flexible asset-based lending solutions that maximize working capital.

Prior to joining eCapital, Matt held senior positions at Alterna Capital and LSQ, where he was a top producer. His commitment to the alternative finance industry is evident in his active participation in the Secured Finance Network as a board member for the Florida chapter, and a member of many other industry organizations such as the Association for Corporate Growth and the Turnaround Management Association.

Matt earned a Bachelor of Science degree (honors) in Finance from Bentley University and is a graduate of the General Electric Financial Management Program.

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