Your company carries it. You must finance it. We’re needless to say talking about inventory. Discussions with clients reveal plenty of misconceptions around inventory financing in Canada. Let’s try to resolve some of those myths around the financing of your inventory, who the players are, who they’re 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 your balance sheet. You cannot overlook the importance an inventory lender will put 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’s solid tip number 1# 1 – be aware that inventory lenders prefer a continuous type of inventory accounting, for all the obvious reasons. Essentially you’re counting and monitoring inventory (with the use of software of course!) constantly. That’s a good thing when it comes to a lenders valuation on a continuing basis and their ability to lend.
You’re company keeps growing. Unfortunately so is your inventory! And that places a huge drain on your cashflow. The working capital cycle dictates that cash turns into inventory which turns into receivables and we start around… that lag can be anywhere from 60 – 120 days, sometimes longer. Never underestimate zoot token that higher sales will bring to your inventory financing needs.
Clients typically are looking 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 based 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 merchandise they have worked so difficult to sell.
Does your company have a listing financing strategy? Nearly all firms we speak to in Canada, certainly in the small and medium business sector don’t have access to the inventory financing they want. Do true inventory financing companies exist in Canada? We believe 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 place of inventory boat loan 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 enhance 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 trusted, 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!May 24, 2021