How Inventory Financing Can Help Free Up Cash Flow and Grow Your Business

Inventory Financing

Richard Straka

For manufacturers that sell products through distributors, the cost of holding inventory can be one of the largestdrains on precious cash flow.A typical credit line may not be the most growth-oriented solution to this challenge. Instead, inventory financing, provided through experienced specialty finance companies, may be a better way to createvaluable, incremental cash flow.

For distributors, inventory finance can stretch cash through extended payment terms and through invoice advances on inventory for both pre-sold and stock orders.

Other benefits include:
• keeping shelves stocked and helping grow sales while maximizing cash flow
• freeing up cash flow by using inventory as collateral to obtain the financing. This allows the business to bid on larger projects and take advantage of growth opportunities
• eliminating the uncertainty of last minute shipping by ordering sooner without constraining resources

For the manufacturer, inventory finance can mean faster payments for shipped inventory and avoiding the expense of assuming distributor credit risk.
Other benefits include:
• helping grow sales by offering extended repayment terms to distributors
• reducing/eliminating accounts receivable collection expense
• improving key balance sheet ratios like days’sales outstanding (DSO)

If you are a distributor whose balance sheet has a significant inventory line and who would benefit from having the right product at the right time, you are likely a good candidate for inventory financing.  

Finding the right lender

A lender that is a true specialist in this type of financing can help companies easily transition from a traditional line of credit to inventory financing. When assessing a candidate for inventory financing, the specialist lender will look at the usual things like credit history, but will also want to understand the amount of inventory carried, the type of products sold, and what their inventory turnover is like (e.g.,how often it is ordered and how quickly it sells).

A good lender will have a holistic view of the electrical distribution industry and not just assess the distributor’s performance. A good lender will also have domain expertise and be actively involved in the industry through associations —lenders who show commitment to your industry means they understand your business environment, allowing them to provide the right type of financing solutions.

Businesses that require a lot of inventory on hand can reap many benefits from inventory financing. If you have never considered it before, it is worth exploring to see how inventory financing can help improve cash flow and drive salesto build a healthier, more successful business.


 

Richard Straka is the Commercial Leader, New Markets for GE Capital, Commercial Distribution Finance Canada (CDF). CDF provided $36 billion in financing for more than 30,000 dealers and more than 3,000 distributors and manufacturers in the U.S. and Canada in 2014.Straka joined CDF via General Electric’s acquisition of Deutsche Financial Services in November 2002. He has over 18 years of experience in distribution finance, and throughout his career has heldvarious positions in sales, fieldservices, credit, operations and quality.

 

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