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 and resolve some of those myths around the financing of your inventory, who the players are, who they are not ( that’s the most common 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 capability to finance your products, which are part of the current assets component of balance sheet. You cannot forget the importance an inventory lender will place on your capability to report and count your products. The reality is that a lot of 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 continuing type of inventory accounting, for all your obvious reasons. Essentially you’re counting and monitoring inventory (by using software of course!) at all times. That’s a good thing in terms of a lenders valuation on a continuing basis and their ability to lend.
You’re company keeps growing. Unfortunately so can be your inventory! And that places zoot token on your cash flow. 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 looking for inventory financing because the degree 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 amount of A/R and of course 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 difficult to sell.
Does your company have a listing financing strategy? The majority of firms we talk to in Canada, certainly in the small and medium business sector don’t have access to the inventory financing they need. 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 an asset based lending scenario that in place 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 very well 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 in relation to inventory financing companies and asset based lenders who’ll give your product the financing it deserves!