The Myth Of Inventory Finance Companies

Your company carries it. You must finance it. We’re of course talking about inventory. Discussions with clients reveal a great deal of misconceptions around inventory financing in Canada. Let’s try to resolve some of these myths around the financing of one’s inventory, who the players are, who they are not ( that’s the most typical myth ) and we’ll also try and provide some self-explanatory direction on next steps in your inventory financing challenge.

The overall quality of one’s inventory management will play a big part in your ability to finance your products, which are a part of the current assets component of balance sheet. You cannot forget the importance an inventory lender will place on your ability to report and count your products. The truth is that most firms are either carrying a ‘ continuous’ or ‘ ‘periodic’ system of inventory control.

So here’s solid tip #1# 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!) always. That’s a good thing in terms of a lenders valuation on a continuing basis and their ability to lend.

fd monthly interest calculator keeps growing. Unfortunately so is your inventory! And that places an enormous drain on your cashflow. The working capital cycle dictates that cash turns into inventory which turns into receivables and we start all over… that lag can be from 60 – 120 days, sometimes longer. Never underestimate the problem that higher sales provides to your inventory financing needs.

Clients typically are seeking inventory financing because the level of investment you have in product and receivables drains your cash flow. As sales volumes increase your cash flow decreases predicated on your overall collection amount of A/R not to mention those inventory turns.

Your sales staff needless to say never wants to be in a position to tell a customer you don’t have the merchandise they have worked so hard to sell.

Does your company have a listing financing strategy? Nearly all firms we talk to in Canada, certainly in the small and medium business sector do not have access to the inventory financing they want. Do true inventory financing companies exist in Canada? We believe that the answer is generally ‘ no ‘, they don’t. However if your firm would consider a secured asset based lending scenario that in effect takes the place of inventory finance companies in Canada.

Under an asset based lending strategy your inventory is margined for what its worth, by experts who categorically know what its worth. You will improve your capability to finance your product when you have the controls, reporting, and inventory accounting system in places that makes the inventory and asset based lender ‘ comfortable ‘.

Speak to a reliable, credible, and experienced business financing advisor with regards to inventory financing companies and asset based lenders who’ll give your product the financing it deserves!