OVERVIEW – Information on inventory financing in Canada. The ability to monetize and cash for your inventories is key to working capital and cash flow success. Here’s one way to consider the inventory finance conundrum
Business inventory financing has us feeling a bit sorry for your company. Why? Your firm is not in the service industry. Those that are in fact are the lucky ones with respect to inventory financing – there is no inventory! Unlike your business, which produces goods and carries inventory to meet customer order needs your services firms have no storage requirements! Let’s dig in.
Depending on the size of the inventory component on your balance sheet financing for that asset is often, if not always, vital. Financing via bank credit lines for the inventory component of your balance sheet is always difficult, if not in some cases impossible.
Most business owners and financial managers know that of your two major current assets ( receivables and inventory ) that banks prefer receivable , aka a/r financing . It’s not hard to understand the challenges around financing inventories – i.e. raw materials, work in process, finished goods, etc. The reality is that every business is unique.
So how do you finance your inventory, and what are the requirements to get such a facility in place?
Inventory financing in Canada is most often financed under an ABL facility. What’s ABL? The acronym stands for asset based lending, and is a specialized type of financing that is mostly carried out by non bank institutions. Facility sizes tend to range from 250k and up, as it is not really economical for all parties (you and the lender) for finance amounts much under that.
Your ability to control, report, and purchase inventory most economically are key drivers in an inventory financing decision made by your inventory financier. Your ability to monitor, stock, and produce and bill and collect are the basic requirements for an inventory financing facility.
We would point out that in many cases this facility also includes a receivable component, because, as we all known, inventory flows into a receivable which flows into … dare we say it… cash! That whole journey is called the business operating cycle by the way.
If you are unable to finance your inventory properly you can very easily get into what can best be describe as a ‘ cash trap ‘- and that’s not a good trap to be in. Typically each one thousand dollars of inventory on hand can cost you between 150 and 250 dollars per year when you take into account some obvious and not so obvious factors such as financing costs, storage, handling, insurance, and deterioration of the inventory which by its necessity forces you to do an asset write down .
The irony is of course that you can have too much inventory or too little, it’s a balancing act – often solved by Just In Time inventory mgmt solutions.
When you arrange inventory financing you want to ensure you have reasonable levels of product – so you need to focus on both financing cost and order costs.
If you have inventory financing fast efficient turns are potentially more possible and you annual carrying costs can be dramatically reduced- don’t forget that the cash you invest in inventory could be put to work elsewhere and in many cases earn, for example, at least 12% more in profits. That’s a very typical number for a manufacturer.
Financing inventory is a challenge – you want to be able to take advantage of volume discounts, but at the same time limit your investment in inventory while satisfying customer order needs. That’s a real teeter totter don’t you think?!
Speak to a trusted, credible and experienced business financing advisor who can guide you through inventory financing in a manner that supports your business and industry. Beating the inventory financing challenge is a solid financial accomplishment for long term growth.
Stan Prokop – founder of 7 Park Avenue Financial –
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 13 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
Email = firstname.lastname@example.org
‘ Canadian Business Financing with the intelligent use of experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
7 Park Avenue Financial
Canadian Business Financing