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Retail Working Capital Options - The Artificial Middle Man

Retail businesses need working capital too. They don't have the problem of waiting for invoices to be paid. They do, though, have to pay their suppliers, sometimes up front. They end up with the same cash-flow problem as contractors or anyone else waiting to be paid.

Shop keepers can't access options such as invoice discounting. . These options require the business to have invoices for completed work.

An alternative is the 'artificial middle-man'. The financier acts as an extra purchaser and seller of the product. They purchase the product for the client and then, in effect, on-sell it to the retailer. The financier takes a share of the profit margin, the client has purchasing terms which are dove-tailed with their cash-flow situation. Normally, the financier will retain ownership of the goods until on-sold and will have other terms and conditions.

To qualify for this kind of financing, the situation has to make sense in four main areas. Whilst on-selling the products is the clients business, the financier needs to know that they are funding a viable proposition, so that the client will be in a position to meet their obligations:

1. Demand. There has to be a demand for the product that can be shown somehow.

2. Ability to sell. The goods have to be brought to the market efficiently. So, the client will either have an established bricks and mortar outlet, or alternatively an internet presence or other established business model.

3. Sufficient profit margin. There has to be enough achievable mark-up in the deal for both the artificial middle man and the retailer to make a viable profit.

4. Turn around. It is important for both parties that the product can be on-sold relatviely quickly.

Each situation will have it's own variations and specifics, but these four points are the keys to making the mechanics of the arrangement work


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