Navigating the distributor squeeze: how to manage Net-60 terms and chargebacks

Breaking into wholesale distribution requires a capital strategy that specifically accounts for the timing gap between upfront production costs and delayed revenue. While securing a contract with a major distributor like UNFI or KeHE validates a brand, it forces suppliers to fund large inventory runs well before payment arrives.

The high cost of wholesale success

Scaling through national distribution channels creates a paradox where a brand’s greatest sales achievement often triggers its most dangerous liquidity crunch.

Distributor contracts create immediate pressure. The celebration of a new contract is often followed by the "distributor squeeze," where expenses spike months before cash flows in. In 2026, raw materials and co-packing deposits must be paid almost immediately, often 90 to 120 days before the distributor actually settles the invoice for those goods. This period requires significant capital reserves to bridge the gap between accounts payable and accounts receivable.

Liquidity enables scaling. Successfully managing liquidity ensures that large purchase orders become drivers of sustainable growth rather than causes of a cash flow crisis. When a brand has adequate working capital, they can negotiate better terms with suppliers—such as early payment discounts on raw ingredients—which improves gross margins. Conversely, a lack of liquidity forces brands to scramble for expensive, last-minute emergency capital or cut corners on production quality.

Strategic funding prevents stagnation. Without a plan to bridge the gap, brands may have to turn down future orders or delay product innovation. Distributors monitor fill rates closely; if a brand cannot fulfill a PO due to a lack of cash for production, they risk being delisted or facing hefty fines. A proactive funding strategy allows the brand to say "yes" to expansion opportunities and seasonal promotions without worrying if the operating account can cover the next payroll run.

The reality of distributor terms: Net-60 and deductions

Distributors generally operate on extended payment timelines while applying various deductions that complicate cash flow forecasting and reduce the final payout amount. Brands must accurately calculate their cash conversion cycle to understand the true impact of these terms on their runway.

Net-60 terms delay revenue. Brands typically wait two months or longer for payment after delivery, creating a significant working capital gap. To accurately model this, you must apply the inventory days formula alongside your Days Sales Outstanding (DSO). While the contract may state "Net-60," the administrative reality in 2026 often pushes actual payment receipt to 75 or even 90 days. This lag occurs because the clock often starts when goods are received at the distribution center, not when they leave your warehouse.

"Free fill" impacts initial margins. New store placements often trigger "free fill" policies, requiring brands to provide the initial case of product for free. This industry standard functions as a slotting fee disguised as inventory. While it secures shelf space, it means the first wave of production costs is effectively a marketing expense with zero immediate revenue return, deepening the initial cash trough.

Deductions reduce expected income. Unexpected fees and audit chargebacks are common in the distributor model and can sometimes result in negative account balances. Distributors pass through costs like spoilage, broken pallets, or promotional allowances directly to the supplier by deducting them from the remittance. Without a robust capital buffer, these "short pays" can cause checks to bounce and operations to stall.

How financing protects cash flow from chargebacks

External financing decouples your operational ability from the unpredictability of specific distributor payouts, ensuring business continuity during disputes. By accessing capital upfront, you maintain control over your production schedule regardless of administrative delays on the buyer's end.

Capital acts as a buffer. Accessing working capital provides the liquidity needed to continue operations even if a distributor deducts fees from a specific payout. When a distributor arbitrarily deducts a "shortage" fee, a well-capitalized business can absorb the hit temporarily while the accounting team investigates. This buffer ensures that a dispute over a relatively small deduction does not freeze the substantial funds needed for the next production run.

Liquidity empowers dispute resolution.Invoice financing allows brands to dispute invalid chargebacks from a position of financial stability rather than needing immediate cash. When a supplier is desperate for cash flow, they are often forced to accept unfair settlements to release the remainder of the check. Financing provides leverage, allowing the brand to push back against administrative errors and recover lost revenue without facing an immediate liquidity crisis.

Factoring prevents production delays. By advancing 70%–90% of an invoice’s value, financing ensures you can fulfill the next PO while previous payments are processed. In the fast-moving CPG sector, momentum is critical. Factoring converts the dormant asset of accounts receivable into active cash, allowing the production cycle to spin faster than the payment cycle.

UNFI and KeHE factoring nuances: funding distributor invoices

Lenders assign different risk profiles to distributor invoices compared to direct retailer invoices due to the complexity of deductions and returns. Securing capital requires working with partners who understand these specific sector challenges.

Distributors act as intermediaries. Companies like UNFI and KeHE introduce additional layers of risk regarding inventory returns and promotional allowances that direct retailers may not apply. Unlike selling directly to a retailer where the transaction is final, distributors hold inventory that may be returned, creating "dilution risk." Lenders must account for the fact that the face value of the invoice is rarely the exact amount paid.

Underwriting varies by debtor. Lenders often view direct retailer invoices differently than distributor invoices, affecting advance rates and eligibility based on perceived litigation risks or deduction frequency. Specialized lenders use sophisticated data to track the "dilution" habits of specific debtors. If a distributor has a history of aggressive deductions, a lender may require a higher reserve account to mitigate risk.

Specialized lenders are required. Bridge Marketplace filters for lenders who specifically understand the risk profile of natural food distributors, ensuring offers reflect the reality of the sector. While automated platforms like BlueVine or Fundbox might offer speed, they often flag distributor invoices as "high risk" due to lengthy terms or complex deduction codes. Specialized lenders recognize a UNFI contract as a valuable asset and understand how to lend against these receivables comfortably.

Comparing capital solutions for CPG brands

The choice between financing products ultimately comes down to a trade-off between the cost of capital and the speed of funding. Brands must weigh the urgency of their production needs against the impact of fees on their gross margin.

Purchase order financing and invoice factoring

These transactional tools address specific supply chain stages, offering faster access to capital in exchange for higher fees relative to bank loans.

PO financing funds production.Purchase order financing pays suppliers directly, allowing brands to fulfill large wholesale orders without depleting cash reserves. This is critical for early-stage brands that have landed a massive contract but lack the balance sheet to pay their manufacturer. The lender pays the co-packer directly, ensuring goods are produced and shipped.

Factoring bridges the payment gap. Invoice factoring turns unpaid invoices into immediate cash. While providers like Triumph Business Capital or TCI Business Capital operate in the broader logistics and general business factoring space, CPG brands often benefit from niche lenders who specialize in distributor relationships. Factoring fees typically range from 1% to 5% of the invoice value, depending on the volume and creditworthiness of the customer.

Cost comparison is vital. Calculating the effective APR against margins helps brands choose the most cost-effective option. Brands must weigh the discount fee against their product margins to ensure that the cost of accessing early capital does not erode profitability entirely.

Asset-based lending (ABL)

Asset-based lending offers a more comprehensive credit facility for mature brands with significant assets beyond just invoices.

ABL leverages broader collateral.Asset-based lending allows businesses to borrow against a pool of assets, including accounts receivable and inventory. Unlike factoring, which is often transaction-specific, ABL functions as a revolving line of credit. This is particularly useful for CPG brands that carry significant inventory values in preparation for seasonal spikes, allowing them to unlock capital trapped in the warehouse before it is even sold.

Structure suits scaling brands. This solution typically offers lower rates than pure factoring but requires more robust financial reporting and field exams. It is an ideal graduation step for brands that have outgrown simple invoice discounting and need a flexible facility that grows alongside their asset base.

SBA 7(a) and CAPLines

Government-backed loans act as a stable, lower-cost foundation for working capital but are less effective for immediate, emergency needs due to underwriting timelines.

CAPLines support seasonal needs.SBA CAPLines are specific working capital lines of credit designed to help businesses meet short-term or cyclical needs. Ideal for the cyclical nature of CPG, these revolving lines allow businesses to draw funds during inventory build-ups and repay them as sales convert to cash.

Lower rates, longer wait. These loans typically offer lower interest rates than private financing. Rates are generally capped based on the Prime rate plus a maximum spread (e.g., Prime + 2.25% to 4.75% for shorter maturities). However, securing an SBA loan involves extensive paperwork and a closing timeline that can stretch 45 to 90 days, making it a poor fit for immediate emergency funding.

Supply chain finance and dynamic discounting

Reverse factoring or dynamic discounting solutions leverage the buyer's credit rating to offer early payment, but they limit the supplier's control.

Reverse factoring relies on the buyer. Platforms like C2FO, Taulia, and PrimeRevenue allow suppliers to accept early payment from the buyer in exchange for a fee (dynamic discounting). While useful, this puts power entirely in the distributor's hands. If the distributor decides to pause their early payment program to preserve their own cash, the supplier is left without options.

Control vs. availability. Unlike independent factoring, which the supplier controls, supply chain finance depends entirely on the buyer offering the program. Relying solely on buyer-led platforms creates concentration risk; if you diversify your customer base, new customers may not offer similar programs.

The risks of merchant cash advances (MCAs)

Merchant cash advances offer speed but often come with costs and repayment structures that can jeopardize a business's long-term health.

High costs and aggressive repayment. Merchant cash advances often carry extremely high effective APRs and require daily or weekly repayments that can strain cash flow. The aggressive daily drain can cripple a CPG brand operating on thin margins and monthly revenue cycles.

Regulatory warnings. The CFPB has issued consumer advisories regarding the risks associated with MCAs, urging small businesses to carefully review terms before accepting these high-cost products. Bridge advises borrowers to exhaust all other options—factoring, lines of credit, or term loans—before considering an MCA.

Streamlining your application for faster funding

Organizing specific financial documents in advance allows lenders to underwrite your application immediately and speeds up the funding timeline. A complete data room signals operational maturity to potential lenders.

Standard documentation is required. Lenders typically request AR aging reports, signed POs, Proof of Delivery (POD), and business registration documents. The "AR Aging Summary" is critical as it shows who owes you money and the duration of the debt. Lenders also review the specific distributor contract to understand payment terms and "guaranteed sale" clauses.

Having documents ready accelerates approval. Preparing these files before applying prevents back-and-forth delays during the underwriting process. By maintaining a digital "data room" with up-to-date monthly financials and bank statements, a brand owner can respond to a lender's request in minutes, potentially shaving a week off the funding timeline.

Single application efficiency.Apply via Bridge Marketplace to upload documents once and receive offers from multiple lenders, typically within 48 hours. The platform matches your specific profile with lenders actively looking for CPG deals, increasing approval odds and saving your credit score from multiple inquiries.

FAQs

Navigating distributor finance can be complex. Here are answers to common questions about managing cash flow with UNFI, KeHE, and other major distributors.

Q: Will factoring my UNFI invoices upset my relationship with them?

A: No, factoring is a standard practice in the CPG industry. Most major distributors are accustomed to paying lenders directly and have established portals to facilitate these re-directions, viewing it as a sign of financial responsibility.

Q: How do chargebacks affect the amount I receive from a factor?

A: Factors typically hold a "reserve" (e.g., 10-20%) of the invoice amount to cover potential disputes. If a deduction occurs, it is taken from this reserve balance before the remaining funds are released to you.

Q: Can I use PO financing if I am a pre-revenue brand?

A: Yes, PO financing is often available to earlier-stage brands because lenders rely heavily on the creditworthiness of your customer (the distributor) rather than your business history.

Q: How quickly can I get funded through Bridge Marketplace?

A: Bridge aims to provide multiple competitive offers within 48 hours of a completed application. Funds can often be deployed in as little as 24 to 48 hours for invoice factoring once the offer is accepted.

Contact us for help for more details on documentation and the funding process.

Ready to stabilize your cash flow?

Aligning with lenders who understand CPG nuances allows you to turn Net-60 terms into immediate working capital and maintain production velocity. Instead of waiting months for payment, you can access the funds needed to grow today.

Apply now to compare offers from lenders who understand the CPG distributor model.