Financing Dynamic Distribution


Demica recently did a qualitative study on the rising role of Distributor Finance programs in enabling downstream business in international supply chains.

Lets first start by a little explanation of what is Distributor Finance given all the hype and confusion around Dynamic Discounting.  Distributor finance (DF) can be defined as:

“Financing solutions that support the working capital needs of a corporate seller’s distributors and potentially the distributors’ resellers, to ease the flow of product through the channel.”

Okay, so what does that mean.  Well think about it this way.  I am Dell or Hewlett Packard with resellers and Distributors in Africa, Asia, Latam, etc.  If my resellers can get more credit from me, they can buy and sell more of my stuff.  But who will lend to them?  That’s where DF comes into play.

Typically Banks or other lenders are involved in one of three ways:

  • The first type is a Receivables based finance program where the corporate exporter (think Dell or HP) receives early payment via the purchase or discounting of distributor receivables, and can than offer extend payment terms to their distributors.
  • The second type is the provision of direct loans and credit facilities to distributors, backed by varying levels of support and involvement by the corporate exporter.
  • The third type involves platform providers and or liquidity providers that interface with the systems used by large sellers to have visibility into the shipment details to the various logistics service providers.

Distributor finance makes particular sense in emerging markets such as the Middle East, Africa, Asia and Latam, where there is a strong manufacturer with a network of small distributors who are highly dependent on their product and the supplier can give the bank some form of guarantee.

Demica’s main point is that as companies undergo a shift from using letters of credit (LC) with their Overseas Dealer Network to open account transactions, these types of financial arrangements have become increasingly relevant. The credit squeeze triggered by the financial crisis has made large corporates more alert to issues surrounding liquidity and risk in their supply chains.

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