We are sorry for you. Your business is not in the service industry. They are lucky in stock financing – there is no inventory! Unlike your business, which produces goods and transport stocks to meet the needs of your sales order, your service companies have no storage requirements!
If your company has an investment in the inventory, the financing of this asset is often, if not always, vital. Funding via bank credit lines for the inventory component of your balance sheet is always difficult, if not impossible in some cases. Most corporate owners and financial managers are familiar with the two major current assets (receivables and inventory) that banks prefer to receive, AKA A / R funding.
So, how to finance your inventory and what are the requirements for such installation in place? The reality is that every business is different and your business will have different inventory categories – the most common raw materials, ongoing work and finished products.
Inventory financing in Canada is most often funded by an ABL installation. What is ABL is the next question that our customers always ask. Acronym represents asset-based loans and is a type of specialized funding that is mainly done by non-bank institutions. The sizes of the facilities tend to go from 250,000 and more because they are not really economical for all parties (you and the lender) for reasons of financing.
Your ability to control, report and buy the most economical stocks are key drivers in a stock financing decision made by your inventory financial. Your ability to monitor, store and produce and bill and collect are the basic requirements for a stock financing center. We will emphasize that, in many cases, this installation also includes a component to receive, because, as we have known all, inventory flows in a flowing debt in … Dare we say it … Cash!
If you can not finance your inventory properly, you can easily understand what can better describe as a “cash trap” – and it’s not a good trap to be in. Typically, every thousand inventory inventory can cost you between $ 150 and $ 250 a year when you take into account obvious and non-obvious factors such as financing costs, storage, handling, insurance and deterioration of the inventory that requires you to do asset writing.
The irony is of course that you can have too much inventory or too little, it is an act of equilibrium.
When you organize inventory financing, you want to make sure that you have reasonable product levels – so you need to focus on funding costs and ordering costs.
If you have inventory financing, fast turns are potentially more possible and your annual transportation costs can be significantly reduced – remember that the money you invest in the inventory could be put at work elsewhere and, In many cases, win, for example, at least 12% more in the benefits. This is a very typical number for a manufacturer.