Tweet

A Different Solution for Business Inventory Financing

Guest post by: Stan Prokop

Article Overview: Information on Canadian Inventory Finance ;Information for Canadian business owners and financial managers on business inventory financing and the need to control and report on inventory to reduce inventory financing costs.

A Different Solution for Business Inventory Financing

We feel sorry for you. Your firm is not in the service industry. They are the lucky ones with 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!

If your firm has an investment in inventory then financing for that asset is often, if not always, vital. Financing via bank credit lines for the inventory component of your balance sheet is always difficult, if not in some cases 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, and what are the requirements to 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.

Inventory financing in Canada is most often financed under an ABL facility. What is ABL is the next question our clients always ask. The acronym stands for asset based lending, and is a specialized type of financing that is mostly carried out by non bank institutions. 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.

Your ability to control, report, and purchase inventory most economically are key drivers in an inventory financing decision made by your inventory financier. Your ability to monitor, stock, and produce and bill and collect are the basic requirements for an inventory financing facility. 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!

If you are unable to finance your inventory properly you can very easily get into what can best be describe as a ' cash trap '- and that's not a good trap to be in. Typically each one thousand dollars of inventory on hand can cost you between 150 and 250 dollars per year when you take into account 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 write down .

The irony is of course that you can have too much inventory or too little, it's a balance act.

When you arrange inventory financing you want to ensure you have reasonable levels of product - so you need to focus on both financing cost and order costs.

If you have inventory financing fast 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 put to work elsewhere and in many cases earn, for example, at least 12% more in profits. That's a very typical number for a manufacturer.

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! That's a real teeter totter don't you think?!

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.

Related Articles
  Business Inventory and Purchase Order Financing Canada
  Are Inventory financing lenders and P O Factoring solutions your best business financing bet ?
  Inventory Financing – Canada - A unique financing challenge
  Inventory & Purchase Order Financing - Canada -
  Get A Cash Flow Solution In Place For Working Capital Financing – Your 2011 New Year Resolution
  What If Inventory Financing Lenders Were the Solution to Your Cash Flow Based Financing
  Real World Lessons On Inventory Financing from Purchase Order To Cash
  Inventory Loans – Financing Inventory Assets
  What is the Solution to Finance Inventory for Canadian Business?
  The Myth Of Inventory Finance Companies
  Inventory Financing & Purchase Order Financing in Canada
  Purchase Order Financing Canada
  Small Business Loans for Working Capital Financing In Canada
  Inventory and Purchase Order Financing Solutions for Canadian Firms
  Canadian Business Financing - Tips on Securing Financing For Your Business
  Is Financing Inventory and Financing Purchase Orders Actually Possible In Canada ? Yes You Can!
  P O Financing and Inventory Financing – Benefits... and Risks!
  Inventory Finance – Working Capital from an Inventory Loan
  Inventory Financing as a Working Capital Solution
  Small Business Inventory Financing in Canada

Article Tags: business inventory financing, inventory finance



Related Forum Posts
Re: Google's April 2012 Update - As far as I understand, Google's main search mission is to deliver The Best Solution Possible, when you type in a query. This means that they kind of _cant_ teach people how to "game the system" and rank themselves. The way I see it, by the time Google's done evolving their algorithm, the only way to get to the top is going to be "Be A Fantastic Solution Provider... across the board... for your niche/keyword."
Seek Venture Capital & Funding - Hello, Greetings from India. I am Seeking Venture Capital for Offshore Software Company Start-up. Need advise along with Business Model Sample. I have a basic outline for an offshore company. 1. Technology - like Microsoft Dot Net, Java, LAMP 2. Talent Team - Found Good Technology Developers. 3. Where I can get the leads/potential customers - Leads have been identified who are willing to move forward offshore projects. 4. I do not have resources like funding. It is a very critical factor to me Industries: Manufacturing, Real Estate, Retail, Insurance, Distribution & Logistics, Healthcare, Industry Associations and Software Product Development, Agricultural Industries and Etc. Services: Offshore Software Development Company. Offices to be located: Hyderabad, Andhra Pradesh, India and USA. Products/Services/Applications in areas like POS & Billing, Sales & Distribution, Production Planning, Material Management, Inventory Control, Plant Maintenance, Purchasing, Accounting and Logistics. Dynamic Web Programming with Database Driven Content Management Systems, Online Stores for E-Commerce, B2B Solutions, Community Portals, Website Redesign and Development, Custom ERP with Enterprise Wide Functional Modules such as Marketing, CRM, Accounting, Inventory Control, Sales & Distribution, Production Planning, Purchase & Stores, Logistics and Supply Chain. Seek your further questions and help. Thank you, Best Regards, Jayapratap.
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Four Reasons Why Entrepreneurs Should Blog

Work at Home Moms and Their Bad Rap?

Multilevel Marketing: 4 Tips To MLM Success

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.