Your company carries it. You have to finance it. We’re needless to say discussing inventory. Discussions with clients reveal many misconceptions around inventory financing in Canada. Let’s try and resolve some of these 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 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 ability 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 ability 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 # 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 when it comes to a lenders valuation on a continuing basis and their capability to lend.
You’re company keeps growing. Unfortunately so can be your inventory! And that places an enormous drain on your cash flow. The working capital cycle dictates that cash turns into inventory which becomes receivables and then we start all over… that lag can be anywhere from 60 – 120 days, sometimes longer. Never underestimate the problem that higher sales will bring to your inventory financing needs.
Clients typically are looking for 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 based on your overall collection period of A/R and of course those inventory turns.
Your sales staff needless to say never wants to maintain a position to tell a person you don’t have the product they have worked so hard to sell.
Does your company have a listing financing strategy? The majority of firms we talk to in Canada, certainly in the tiny and medium business sector don’t have access to the inventory financing they want. Do true inventory financing companies exist in Canada? zoot feel that the answer is generally ‘ no ‘, they do not. However if your firm would consider a secured asset based lending scenario that in place takes the area of inventory boat loan 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 ability to finance your product when 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 with regards to inventory financing companies and asset based lenders who’ll give your product the financing it deserves!