A Different Solution for Business Inventory Financing

We are sorry for you. Your company is not in the service industry. They are the lucky ones about inventory financing – there is no stock! Unlike your business, which produces goods and inventory to meet customer order needs, your service companies don’t need storage!

If your company has a stock investment, financing for this asset is often, if not always, vital. Financing through bank credit facilities for the inventory component of your balance sheet is always difficult, if not impossible in some cases. Most business owners and financial managers know that out of their two main current assets (receivables and inventory) banks prefer to receive, also known as a / r financing.

So how do you finance your inventory and what are the requirements to install this installation? The reality is that each company is different and your company will have different inventory categories – usually raw materials, work in progress and finished products.

Inventory finance in Canada is most often funded under an GLA facility. What is GLA is the next question our customers always ask. The acronym stands for asset-based lending and is a specialized type of financing that is mainly carried out by non-bank institutions. Facility sizes tend to range from 250,000 and above as it is not really economical for all parties (you and the lender) for financial amounts far below that.

Your ability to cost-effectively track, report, and purchase inventory is a major factor in an inventory financing decision made by your inventory financier. Its ability to monitor, stock and produce, invoice and collect are the basic requirements of an inventory financing mechanism. We point out that in many cases this mechanism also includes an inbound component because, as we all know, the stock flows into an incoming receivables that flows into … we dare to say it … money!

If you can’t adequately fund your inventory, you can easily get into what might best be described as a “cash trap” – and that’s not a good trap to be with. Typically, every thousand dollars in inventory available can cost between $ 150 and $ 250 a year when you take into account some obvious and not so obvious factors such as financing costs, storage, handling, insurance, and stock deterioration that you need. , requires a write-off of assets.

Of course the irony is that you can have too much stock or too little, it’s a balancing act.

When you organize inventory financing, you want to ensure that you have reasonable product levels – so you need to focus on financing costs and orders.

If you have inventory financing, fast and efficient shifts are potentially more possible and annual transportation costs can be drastically reduced – don’t forget that money invested in inventory can be placed elsewhere and in many cases earns, for example. , at least 12% more in profits. This is a very typical number for a manufacturer.

Financing inventory is a challenge – you want to take advantage of volume discounts, but at the same time limit your inventory investment by meeting customer order needs. Wow!! This is a real somersault, don’t you think ?!

Speak to a trusted, credible, and experienced business finance consultant who can guide you in inventory finance to support your business and your industry. Overcoming the challenge of inventory financing is a solid financial achievement.