How to finance Inventory, Purchase Orders and Receivables
Australian business owners and financial managers need to maximize working capital solutions around their key financeable assets.
Let’s look at purchase order financing as an example. If you choose a purchase order financing facility you are obviously in a position to take on larger contracts and generate more profits for your firm. Overall larger orders and contracts also increase your competitiveness in your industry.
By utilizing a p.o. financing strategy you simply allow the p.o. finance firm to pay suppliers for goods and service you need to facilitate the order. When your product is shipped and delivered the purchase order finance firm is paid by your yourself via your bank or factoring facility. Although you have a higher cost of financing let’s look at what really has happened – you have converted inventory into A/R into cash – Payment by your customer generates profit.
Without the financing of the purchase order you more often than not could not have fulfilled such large orders or contracts. So by sacrificing some gross margin you have grown revenues and bottom line profits.[blockquote align=”center”]By utilizing an inventory financing strategy similar financial success is achieved. With an inventory financing facility in place you can stock more products and generate those additional sales.[/blockquote]
An inventory financing facility via an asset based line of credit is very complimentary to your receivable and purchase order strategy. You are simply maximizing your cash conversion cycle – you are turning orders into inventory into cash into profits in a manner that previously was not possible. Higher financing costs are in many cases easily offset by smarter volume purchasing and your ability to pay cash for products and service
In summary, consider purchase order, inventory and A/R financing in context of selling more, turning assets over quickly, and maximizing the opportunity cost of working capital. If you are uncomfortable in determining your exact working capital strategy needs consult the services of an experienced and credible financing advisor.