Your company carries it. You must 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 those myths around the financing of one’s inventory, who the players are, who they’re 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 your inventory management will play a big part in your capability to finance your products, which are a part of the current assets element of balance sheet. You cannot overlook the importance that an inventory lender will put on your capability to report and count your products. The truth is that a lot of firms are either carrying a ‘ continuous’ or ‘ ‘periodic’ system of inventory control.
So here’s solid tip number 1# 1 – remember that inventory lenders prefer a continuous type of inventory accounting, for all the obvious reasons. Essentially asia99 counting and monitoring inventory (with the use of software of course!) all the time. That’s a good thing in terms of 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 an enormous drain on your cashflow. The working capital cycle dictates that cash becomes inventory which turns into receivables and then 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 searching for inventory financing because the degree of investment that you have in product and receivables drains your cash flow. As sales volumes increase 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 be in a position to tell a customer you don’t have the merchandise they have worked so hard to sell.
Does your company have an inventory financing strategy? Nearly all firms we talk to in Canada, certainly in the tiny and medium business sector don’t have usage of the inventory financing they need. Do true inventory financing companies exist in Canada? We feel that the answer is generally ‘ no ‘, they don’t. However if your firm would consider a secured 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 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 will give your product the financing it deserves!
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