Distributor finance funds a manufacturer's dealers to hold stock until their own customers pay
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Ossiano Guides · Paying on terms
A finance provider pays for the stock a distributor holds for a large manufacturer. The stock and the money customers owe secure the funding, and the manufacturer often backs it with a promise to stop supply, buy goods back or share the risk.
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01 · The parties
The manufacturer anchors the program and the distributor signs the facility
Distributor finance pays for the goods a dealer holds until its own customers pay. The Global Supply Chain Finance Forum (GSCFF) defines as financing for the distributor of a large manufacturer to hold goods for resale. It bridges the gap until the distributor collects the money its own customers owe, according to the GSCFF's distributor finance page.
Three parties take part, the GSCFF explains. The large manufacturer is the seller, often called the , because its strength holds the program together. Its distributors are the buyers. A finance provider, such as a bank, supplies the funds.
The finance agreement, or facility letter, is usually signed directly between the distributor and the finance provider, per the GSCFF. The distributor then sells to retailers or end customers. Their payments close the gap.
The technique goes by several names. The GSCFF lists Buyer Finance, Dealer Finance, and as synonyms, and notes the last is not always strictly comparable. It is one of the techniques of , the family of tools that free up cash tied up in a supply chain. Our instrument card on distributor finance sums it up on one page.
It helps to compare it with . Under consignment, the manufacturer itself waits to be paid until the distributor sells the goods. Consignment is a variation of , where goods are delivered before payment is due. Our guide to open account trade covers both.
02 · Security and support
Stock, customer debts and the manufacturer's promises back the funding
The finance provider is protected in two ways: it holds rights over the goods, and the manufacturer often stands behind the distributor. Security is usually an assignment of rights over inventory and receivables, or other security agreed with the finance provider, per the GSCFF. In plain terms, the provider gets a claim over the stock and over the money customers owe for it.
The manufacturer can support the program in four ways, the GSCFF lists:
- A : a promise to stop shipping to the distributor in agreed cases.
- A : a promise to take back the goods if the distributor defaults.
- A : a letter that supports the distributor without a binding promise to pay.
- A risk sharing arrangement: the manufacturer carries part of any loss.
The main risk is that the distributor fails to pay. The GSCFF names default by the distributor, including credit risk and , the risk of loss from events in a foreign country. US bank examiners see the same support in practice. The FDIC's floor plan examination procedures list a repurchase agreement with the manufacturer for new units among the terms to check.
Figure 1 · Interactive
Follow a shipment from manufacturer to end customer under distributor finance
Tap a stage to see which party acts at each step.
Steps drawn from the Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance (2016), Distributor Finance.
03 · Floor plan
Floor plan lending adds unit-by-unit control of the stock
In US vehicle retail, the same idea is called floorplan financing, and lenders check the stock closely. Ford Credit offers "a wholesale financing program for qualifying dealers" to finance new and used vehicles held in inventory, according to its Form 10-K for 2023. Ford Motor Company's Form 10-K for 2025 describes these wholesale loans to dealers as floorplan financing.
The rate usually moves with the market. "Dealers generally pay a floating interest rate on wholesale loans," the Ford Credit 10-K states.
Lenders also check the stock often. The FDIC's examination procedures call for floor plan inspections generally monthly, or more often based on how fast the stock turns over. They also list a periodic program for unsold units. That means the dealer pays down part of the funding on a unit that has not sold after an agreed time.
For finance against stock more generally, see , where the provider funds goods held in storage and takes security over them. Our guide to inventory finance covers it in full.
04 · Manufacturer programs
Manufacturers report what it costs to finance their dealers' stock
Some manufacturers publish the cost of their dealer finance programs, and Toro is one. The Toro Company reports financing costs for distributor and dealer inventories of $79.4 million in fiscal 2025, $100.9 million in fiscal 2024 and $114.7 million in fiscal 2023, in its Form 10-K financing programs note.
Toro also co-owns the finance provider. Red Iron Acceptance, LLC is a joint venture with Huntington Distribution Finance, Inc. Its "primary purpose" is to provide inventory financing to certain US distributors and dealers of Toro products, according to Item 1 of Toro's Form 10-K for fiscal 2025. Toro owns 45.00 percent of Red Iron, per its joint venture details.
Toro also has inventory financing arrangements with Huntington Commercial Finance Canada, Inc. and other third-party financial institutions, the same 10-K notes.
Figure 2
Toro's financing costs for distributor and dealer inventories
Hover or tap a bar to see the fiscal year and the amount.
Source: The Toro Company, Form 10-K for fiscal year ended October 31, 2025, Financing Programs narrative details (R53), filed December 17, 2025.
05 · Cost of holding
Each extra day of stock on the floor carries a financing cost
The longer goods sit unsold, the more the funding costs. Take $1,000,000.00 of goods financed at 6.00 percent a year. On a 360-day year, 30 extra days cost $5,000.00, 60 days cost $10,000.00 and 90 days cost $15,000.00. That is $166.67 for each extra day.
The 360-day year is the standard in US money markets, the rule for turning an annual rate into interest for a number of days. The Alternative Reference Rates Committee recommends it, and the Federal Reserve annualizes its H.15 money market rates on a 360-day year.
The funding itself is short. Distributor finance facilities fund inventory and receivables on a short term basis and are reviewed each year, per the GSCFF. The , the time from funding to repayment, covers the gap until customers pay.
Figure 3 · Try it
What an extra month of dealer stock costs to finance
Move the slider to set the stock value, then tap the pills for days and rate.
Extra days the stock is held
Annual rate
Holding cost
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Cost as a share of the goods
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Cost per extra day
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How it works: the holding cost equals the value of the goods times the annual rate times the extra days, divided by 360.
Our Research Desk used simple interest on a 360-day year: value x annual rate x extra days / 360. The rates shown are for illustration and are not Ossiano pricing.
This calculator explains the concept only. Floor plan and distributor rates are often floating and vary with the manufacturer's support and the finance provider.
For how rates and fees are built up, see our guide to how trade finance is priced. For how stock days feed into a company's cash cycle, see working capital and trade finance.
06 · Accounting reference
Official standards and lender filings are the reference points for reporting
This section lists the official references only. For IFRS reporters, IAS 2 Inventories measures inventories at the lower of cost and , roughly the expected selling price less the costs to sell.
On the lender's side, Ford Credit reports that finance receivables in its non-consumer portfolio include products offered to automotive dealers, in its Form 10-K for 2023.
Two disclosure rules on supplier finance are also relevant reading. The FASB issued ASU 2022-04, Disclosure of Supplier Finance Program Obligations, in September 2022. The IASB issued Supplier Finance Arrangements, amending IAS 7 and IFRS 7, on May 25, 2023. Whether either applies to a distributor program depends on its terms. This is a reference summary only and does not assess how any program is reported.
07 · Ossiano view
In distributor finance, the manufacturer's support shapes the dealer's access to finance
OBSERVATION 01
The anchor's promises carry weight
The GSCFF lists stop-supply letters, buy-back guarantees, comfort letters and risk sharing as manufacturer support. Each one links the dealer's credit to the manufacturer's strength.
OBSERVATION 02
Manufacturers report the channel's financing cost
Toro reports financing costs for distributor and dealer inventories each year, $79.4 million in fiscal 2025. It also co-owns a dedicated inventory financing joint venture, Red Iron Acceptance.
OBSERVATION 03
Unit-level checks keep facilities current
US examiners expect floor plan inspections generally monthly and curtailment of unsold units. The facility tracks the stock on the floor.
Summary
Distributor finance pays for a dealer's stock until its own customers pay
A finance provider funds the goods a distributor holds for a large manufacturer. The stock and the money customers owe secure the funding. The manufacturer often adds support, such as a stop-supply letter, a buy-back guarantee, a comfort letter or risk sharing. Facilities are short term and reviewed each year.
In US vehicle retail the same idea is called floorplan financing. Dealers generally pay a floating rate, and US examiners expect monthly inspections and paydowns on unsold units. Toro reported $79.4 million of financing costs for distributor and dealer inventories in fiscal 2025.
Related guides: Inventory finance; Payables finance; Receivables finance; Working capital and trade finance; Financing industrial goods trade; Open account trade.
Instrument cards: Distributor finance; Inventory finance; Open account; Trade credit insurance. Every term on this page is defined in the Trade Finance Glossary.
For questions on how distributor finance applies to existing or planned trade flows, contact the Ossiano Research Desk.
Sources
- The Toro Company via SEC EDGAR, Toro Form 10-K fiscal year ended October 31, 2025, Financing Programs Narrative (Details), December 17, 2025. Supports: financing costs for distributor and dealer inventories of $79.4 million (fiscal 2025), $100.9 million (fiscal 2024) and $114.7 million (fiscal 2023); Figure 2.
- The Toro Company via SEC EDGAR, Toro Form 10-K fiscal year ended October 31, 2025, Investment in Joint Venture (Details), December 17, 2025. Supports: Toro owns 45.00 percent of Red Iron Acceptance, LLC.
- US SEC EDGAR (The Toro Company), The Toro Company Form 10-K for fiscal year ended October 31, 2025, December 17, 2025. Supports: Red Iron joint venture with Huntington Distribution Finance and its inventory financing purpose; arrangements with Huntington Commercial Finance Canada and other third-party financial institutions (Item 1).
- Federal Deposit Insurance Corporation, Core Analysis: Floor Plan Loans, Examination Modules (10/22), October 2022. Supports: floor plan inspections generally monthly or more often based on inventory turnover; repurchase agreement with the manufacturer for new units; periodic curtailment program for unsold units.
- Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance: Distributor Finance, 2016. Supports: definition; parties; facility letter between distributor and finance provider; synonyms; security over inventory and receivables; manufacturer support; distributor default risk; short term funding with annual review; Figure 1.
- US SEC EDGAR, Ford Motor Credit Co LLC, Form 10-K for fiscal year 2023, February 7, 2024. Supports: wholesale financing program for qualifying dealers; floating interest rate on wholesale loans; non-consumer finance receivables include products offered to automotive dealers.
- US SEC EDGAR (Ford Motor Company), Ford Motor Company Form 10-K for fiscal year 2025, 2026. Supports: Ford Credit wholesale loans to dealers described as floorplan financing.
- Alternative Reference Rates Committee, SOFR "In Arrears" Conventions for Syndicated Business Loans, July 22, 2020. Supports: Actual/360 as the standard US money market day count, used in the worked example and Figure 3.
- Board of Governors of the Federal Reserve System, Selected Interest Rates (Daily), H.15, September 29, 2026. Supports: money market rates annualized on a 360-day year, used in the worked example and Figure 3.
- IFRS Foundation, IAS 2 Inventories, undated. Supports: inventories measured at the lower of cost and net realizable value.
- Financial Accounting Standards Board, Accounting Standards Update No. 2022-04, September 2022. Supports: title and issue date of ASU 2022-04.
- IFRS Foundation, IASB increases transparency of companies' supplier finance, May 25, 2023. Supports: Supplier Finance Arrangements amendments to IAS 7 and IFRS 7, issued May 25, 2023.
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