When a supplier offers trade credit to a reseller, the supplier faces numerous risks:
- The reseller’s customer will cancel or alter their purchase order
- The reseller won’t be able to deliver the product
- The reseller’s customer rejects the product
- The reseller’s customer can’t pay their bill
- The reseller won’t pay on time or just won’t pay
Invoice factoring combined with a supplier assurance letter by Riviera Finance will remove the reseller credit risks (4 and 5 above). If the supplier is confident in the product, which they should be, and the reseller’s purchase order is verified, the supplier assurance letter may enable the reseller to buy and resell product without any working capital required.
The Assurance Letter Process:
- The reseller establishes a non-recourse invoice factoring account with Riviera Finance. In addition to cash flow, this provides a credit guarantee on approved customers.
- The reseller receives a purchase order from the credit-approved customer.
- The supplier reviews the purchase order and arranges to deliver product to the reseller.
- Riviera Finance reviews the credit and purchase order of the customer, sets a credit limit, and issues a supplier assurance letter to the supplier. This is a guarantee to pay the supplier a specific amount after the product is delivered to the customer and the invoice is factored.
- The supplier delivers product to the reseller and invoices the reseller.
- The reseller delivers product to the customer and issues an invoice with proof of delivery to Riviera Finance.
- Riviera Finance verifies customer acceptance and notifies the customer to pay Riviera Finance directly.
- After successful verification, Riviera Finance pays the supplier, then pays the reseller the balance of the invoice less the factoring fee and any reserve, according to the terms of the factoring agreement.
- Riviera Finance sends the factored invoice and backup to the customer for payment according to the original credit terms.
This remarkable process allows the reseller to buy and sell product without any outlay of cash. The supplier can substantially limit the transaction risk while enabling the transaction and building a growing trade relationship with the reseller. All three businesses benefit in the process.