How To Use Inventory Finance When You Don’t Have Any Inventory
Is this some kind of wizardry financing option?
Is this some kind of wizardry financing option?
Did you know that you can use the impending purchase of inventory to secure funding?
I’ll explain what I mean. You’ve just won a contract to landscape a business park. The contract specifies bespoke paving. Only one supplier manufactures the pavers. You’ve already run low on cash gearing up for the project and your line of credit with the bank is maxed-out.
So you tell the paving supplier that you can buy the pavers after you’ve received your first progress payment from the contractor.
The supplier wants COD. You try to explain that you can’t start the job until you have the pavers. Once you have paved ‘X’ amount you’ll put in a claim and then pay for the pavers.
The supplier says: “Sorry mate, COD only!”
No use going to the contractor, they’ll just find another landscaping company, who by the way, will still be buying the same pavers off the same supplier.
BINGO! You can get funding.
The pavers would a high liquidated value. This gives a potential funder some comfort in that they can be on-sold to another landscaper in the event that you cannot complete the project. The comfort for you is that same funder will forward you finance to buy the pavers based partially on their liquidated value plus a small portion of your progress payment claims – probably less than 1 per cent.
Which means you can buy the pavers. Which means you can start work. Which means you can invoice and get paid.
You can even do this pre-emptively. That is, get an agreement to fund inventory to enable you to compete for the contract in the first place.
The boil down?
You don’t need to be cashed up to submit a tender, just a bit savvy about financing the back-end.
