Your company carries it. You need to finance it. We’re of course talking about inventory. Discussions with clients reveal a great deal of misconceptions around inventory financing in Canada. Let’s try and 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 to 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 forget the importance that an inventory lender will place on your capability to report and count your products. GOBETASIA is that a lot of 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 continuing type of inventory accounting, for all the obvious reasons. Essentially you are counting and monitoring inventory (with the use of software of course!) all the time. That’s a good thing with regards to 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 cash flow. The working capital cycle dictates that cash becomes inventory which turns into receivables and then we start around… that lag can be anywhere from 60 – 120 days, sometimes longer. Never underestimate the issue that higher sales will bring to your inventory financing needs.
Clients typically are searching for inventory financing because the level of investment that you have in product and receivables drains your cash flow. As sales volumes boost your cash flow decreases based on your overall collection amount of A/R not to mention those inventory turns.
Your sales staff of course never wants to maintain a position to tell a customer you don’t have the merchandise they have worked so difficult 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 do not have usage of the inventory financing they want. Do true inventory financing companies exist in Canada? We feel 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 finance 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 improve 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 will give your product the financing it deserves!