Funding the supplier side of the cycle, so a large order becomes an opportunity rather than a cash flow problem.
The problem it solves
Invoice finance funds you after you have invoiced. Trade finance funds you before.
For a medical or pharmaceutical distributor that gap is where the pressure sits. Suppliers, particularly overseas ones, often want payment before shipment or on shipping documents. You then hold stock, deliver, invoice, and wait. The money can be committed for months before any of it comes back.
A large order from a hospital group ought to be good news. Without the right funding in place, it can be the thing that strains your cash position.
How it works
- You have a confirmed order from a creditworthy customer
- The funder pays your supplier, either directly or through a letter of credit
- Goods ship and are delivered
- You invoice your customer
- The facility unwinds when the customer pays, or rolls into an invoice finance facility
Used alongside an invoice facility, it funds the whole cycle rather than half of it, which is the point. Together the two can allow a distributor to take on larger orders than its own balance sheet would otherwise support. Our general invoice finance guide explains the receivables side in more detail.
What funders assess
- The strength of the end customer, which is what the facility ultimately relies on
- Your track record with the supplier and the goods
- The nature of the product, its shelf life and whether it is readily saleable elsewhere
- Shipping and delivery terms
- Regulatory and licensing position for the products concerned
- Any temperature-controlled or cold chain requirements
Where medical distribution gets specific
Two things make this sector different from general import finance.
Regulatory constraints. Products subject to licensing, controlled distribution or cold chain requirements narrow the funder pool. Funders unfamiliar with medical distribution can be nervous about goods they cannot easily resell if something goes wrong.
Shelf life. Pharmaceutical stock with a dating requirement is a different security proposition from durable goods. It can be funded, but it needs a funder who understands the product rather than treating it as generic inventory.
If the issue is holding stock in the UK rather than paying for it before shipment, stock finance may be the better fit.
Common questions
Do I need an invoice finance facility as well?
Not necessarily, but the two usually work better together. Trade finance funds the purchase; invoice finance funds the receivable. Together they cover the full cycle.
Can this fund a single large order?
Yes, and that is a common use. A one-off order that is too large for your working capital is one of the situations this product is designed for.
What if the goods are rejected?
That is a real risk, and it is why funders assess the product and the customer relationship carefully. Clear specifications and an established supply relationship matter more here than in most funding.
Does trade finance cover currency risk?
Not by itself. If you pay suppliers in a foreign currency, exchange rate movements between order and payment are a separate risk, and it is worth discussing hedging with your bank or currency provider alongside the facility.
For the wider picture on funding distributors, return to medical wholesaler finance, or see our general guide to working capital.
All figures are indicative and subject to lender assessment, your circumstances, valuation and prevailing market conditions. Commercial mortgages and unregulated bridging loans are not regulated by the Financial Conduct Authority. Property offered as security may be at risk if you do not keep up repayments.