We feel sorry for you. They are the lucky ones with in modern times 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! Your firm is not in the utility industry.
If your firm , an investment in inventory then financing for that asset is often, if not alwayshasvital. Financing via bank credit lines for the inventory component of your balance sheet cases always challenging, if not in some is 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.
So how do you finance your inventory, andtowhat are the requirements get such a facility in place? The reality is that every business is different and your firm will have different categories of inventory – most commonly they are raw materials, work in progress, and finished goods.
In fact, The acronym stands for asset based lending, and is a specialized type of financing that is mostly carried out by non bank institutions. as a matter of fact What is ABL is the next inquiry our clients always ask. 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. financing in Canada is most often financed under an ABLInventoryfacility.
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! Interestingly, Your ability to monitor, stock, and produce and bill and collect are the basic requirements more than ever for an inventory financing facility. Your ability to control, summary, and buy inventory most economically are key drivers in an inventory financing decision made by your inventory financier.
If you are unable to finance your inventory properly you can very easily get into what can finest be describe as a ‘ cash trap ‘- and that’s not a good trap to be from another perspective in. Typically each one thousand dollars inventory on hand can cost you between 150 and 250 dollars per year when you take intooflogin 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 compose down.
The irony is of coursetoothat you can have too much inventory or little, it’s a balance act.
When you arrange inventory financing you want to ensure you have reasonable levels of offering – so you need to focus on both financing cost and order costs.
If you have inventory financing swift 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 and to work elsewhere put in many cases earn, for example, at least 12% more in profits. That’s a very typical number for a manufacturer.
That’s a real ’ totter donteetert you think?! 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. Whew!
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.