Discussions with clients reveal a lot of misconceptions around inventory financing. Let’s try and resolve some of those myths around financing inventory, who the players are and we’ll also provide direction on next steps in your inventory financing challenge.
The overall quality of your inventory management will play a large part in your ability to finance company. You cannot overlook the importance that an inventory lender will place on your ability to report and count your products. The reality is that most firms are either carrying a ‘continuous’ or ‘periodic’ system of inventory control.
So here is solid tip # 1 – be aware that inventory lenders prefer a continuous type of inventory accounting, for all the obvious reasons. Essentially you are counting and monitoring inventory (with the use of software of course!) at all times. That’s good thing when it comes to a lenders valuation on an on-going basis and their ability to lend.
You’re company is growing and so is your inventory! And that places a huge drain on your cash flow. The working capital cycle dictates that cash turns into inventory which turns into receivables and then we start all over… that lag can be anywhere from 60 – 120 days, sometimes longer. Never under estimate the problem that higher sales will bring to your inventory financing needs.
Clients typically are looking for inventory finance company because the level of investment that you have in product and receivables drains your cash flow. As sales volumes increase your cash flow decreases based on your overall collection period of A/R and of course those inventory turns.
Does your company have an inventory finance company strategy? The majority of firms we talk to in, certainly in the small and medium business sector do not have access to the inventory financing they need. Do true inventory financing companies exist? We fell that the answer is generally ‘no’, they do not. However if your firm would consider an asset based lending scenario that in effect takes the place of inventory finance companies.