Your company carries it. It is advisable to finance it. We’re needless to say discussing 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 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 one’s inventory management will play a big part in your capability to finance your products, which are a part of the current assets component of your balance sheet. reviews of creative planning 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 is solid tip #1# 1 – be aware that inventory lenders prefer a continuous type of inventory accounting, for all your obvious reasons. Essentially you are counting and monitoring inventory (by using software of course!) at all times. That’s a good thing in terms of a lenders valuation on an ongoing basis and their ability 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 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 trying to find inventory financing because the level of investment that you have in product and receivables drains your money flow. As sales volumes boost your cash flow decreases predicated on your overall collection period 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 product they have worked so hard to sell.
Does your company have an inventory financing strategy? Nearly all firms we speak to in Canada, certainly in the small and medium business sector do not have access to the inventory financing they need. Do true inventory financing companies exist in Canada? We feel that the answer is normally ‘ no ‘, they do not. However if your firm would consider a secured asset based lending scenario that in place takes the area 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 very well what its worth. You will enhance your capability to finance your product if you have the controls, reporting, and inventory accounting system in places which makes the inventory and asset based lender ‘ comfortable ‘.
Speak to a reliable, credible, and experienced business financing advisor in relation to inventory financing companies and asset based lenders who’ll give your product the financing it deserves!