So Why Would You Choose Inventory Finance?
Picture this. You just delivered a big order to your customer, which guarantees you 50K, however they won’t pay you for another 60 days. But your supplier is expecting a payment for the next lot of goods you ordered – they won’t release until you pay upfront.
Yet you have money tied up in other things and cant free up any cash to pay for it.How do you pay for your inventory when your customers haven’t even paid you yet?
Meet Debtor Finance’s younger brother ‘Inventory Finance’, they come from the same family but are a very different product, however essentially they are here to fix the same problem. Cashflow.
So what exactly is Inventory Finance? And how does it work?
If you are familiar with debtor finance, then Inventory Finance is a simple concept to understand. But there’s one big difference. This transaction takes places at the beginning of the sale process or cashflow cycle, rather than right at the end. Unlike debtor finance where the financier purchases your invoices for work already completed, the financier is purchasing stock for your business that hasn’t even been sold yet.
Inventory finance is designed for small to medium enterprises that are steadily successful, consistently profitable and continuing to grow. Inventory Finance can provide cash upfront for a range of business types and products including, clothing, fresh produce and electrical. And like debtor finance you don’t need to put your house on the line as collateral. It is based and assessed on actual figures and your line of credit.[blockquote]So why would you choose inventory finance? [/blockquote]
99% of cases you need to pay you’re supplier upfront for your inventory to be released. If you are waiting for a customer to pay you and your supplier is waiting for you to pay them, there’s a serious cash flow problem. No income means no supplies and no supplies means no business. You need money to fund your stock immediately.
Inventory finance will pay your supplier freeing up more cash. This leaves you with the opportunity to purchase more products, turnaround faster on customer orders, increase your sales and eliminate the stress of waiting for customers to pay their bill, when let’s face it with up to 60 days of open credit they are not going to rush!
And here’s a benefit you may not have even thought of – If you are purchasing more product from your supplier and paying them on time every time, you can guess how much they’re going to love you. Expect bulk discounting for bigger and more regular orders and as a result of that your shipping costs are likely to go down too. You’re happy. Suppliers are happy and essentially your customers are happy.
To be eligible for Inventory finance you must tick a few compulsory boxes
1. Your business must be in a good state – paperwork must prove this.
2. Your business must be profitable – paperwork must prove this.
3. No start ups you must have been trading for at least 3 years
NB. Financial requirements need to be assessed along with access to your most recent financials. To take such a risk on an order of stock that hasn’t even been sold yet, you need to show a strong history of sales.