Your company carries it. You should finance it. We’re of course talking about inventory. Discussions with clients reveal a lot of misconceptions around inventory financing in Canada. Let’s try to resolve some of these myths around the financing of your inventory, who the players are, who they’re not ( that’s the most common myth ) and we’ll also try and provide some straight forward direction on next steps in your inventory financing challenge.
The overall quality of your inventory management will play a big part in your capability to finance your products, which are part of the current assets component of balance sheet. You cannot overlook the importance that an inventory lender will place on your capability 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# 1 – remember that inventory lenders prefer a continuous type of inventory accounting, for all the obvious reasons. Essentially you are counting and monitoring inventory (by using software of course!) at all times. That’s a good thing when it comes to a lenders valuation on a continuing basis and their capability to lend.
You’re company is growing. Unfortunately so can be your inventory! And that places a huge drain on your cash flow. The working capital cycle dictates that cash becomes inventory which becomes receivables and then we start around… that lag can be from 60 – 120 days, sometimes longer. Never underestimate the issue that higher sales will bring to your inventory financing needs.
Clients typically are searching for inventory financing because the level of investment you have in product and receivables drains your money flow. As sales volumes increase your cash flow decreases predicated on your overall collection period of A/R not to mention those inventory turns.
Your sales staff of course never wants to maintain 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 tiny and medium business sector don’t have access to the inventory financing they need. Do yoursite.com financing companies exist in Canada? We feel that the answer is normally ‘ no ‘, they don’t. However if your firm would consider an asset based lending scenario that in effect takes the area of inventory finance companies in Canada.
Under a secured asset based lending strategy your inventory is margined for what its worth, by experts who categorically know what its worth. You will improve your ability 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 trusted, credible, and experienced business financing advisor with regards to inventory financing companies and asset based lenders who will give your product the financing it deserves!