Inventory Financing Companies In Canada
Quick Guide To Inventory Finance & Working Capital
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Inventory finance companies in Canada address the challenge experienced by many Canadian businesses - they carry inventories - but they need to finance them also. There are numerous misconceptions around who exactly finances inventory, how is it done, and the challenges around the financing of this valuable and important asset on your balance sheet.
The overall way in which you manage inventories is a key part of your ability to the financing of the asset. It can never be overlooked that when inventory is a key part of your firm's financing you need to be able to report and count your products, as simple as that might seem a statement. Typically businesses carry either a 'continuous' inventory or in some cases 'periodic'.
As a general rule, lenders prefer a 'continuous' type of inventory accounting - that is simply being able to count and monitor your inventories at all times. Since inventories are 'margined' in your agreement with your commercial lender or bank the ongoing valuation of the asset is key.
Naturally 'current assets' such as receivables and inventory grow as your company's sales are growing. The proverbial 'working capital cycle' that all businesses are familiar with is one in which cash turns into inventory which in turn creates accounts receivable - with process hopefully repeating itself and turning over as fast as is possible.
That total lag in the business can take anywhere from 60 to 120 days in most industries. We at 7 Park Avenue Financial, therefore, caution clients that the great thing about having growing sales revenues is that that also brings on the challenge of more current asset financing needs around inventory and A/R.
Why Do Businesses Look For Inventory Financing Solutions?
Clients typically are looking for inventory financing because the level of investment that you have in product and receivables drains your cash flow. As sales volumes increase your cash flow decreases based on your overall collection period of A/R and of course, those inventory turns.
Sales personnel want to know that their firm can deliver on orders that are higher value, including large new contracts or clients.
If you talk to business owners and financial managers in the ' SME ' (small to medium enterprise) sector of the Canadian economy many will say that just don't have access to the financing they need to grow or even run their business.
Do true inventory financing companies exist in Canada? We feel that the answer is generally ' no ‘, they do not. However, if your firm would consider an asset based lending scenario, that in effect takes the place of inventory finance companies in Canada. That is the asset based credit facility most firms we work with that is utilized to address the inventory finance challenge.
Under an asset based lending strategy, your inventory is margined for what it's worth, by experts who categorically know what it's worth. You will enhance your ability to finance your product if you have the controls, reporting, and inventory accounting system in places that make the inventory and asset based lender 'comfortable'. When properly margined asset based credit lines maximize the liquidity in your firm.
Key Benefits Of Asset Based Credit Lines For A/R & Inventory:
Provide financing in lieu of owners giving up valuable equity
Allows Firms to Consider Mergers & Acquisitions
Provide growth financing where balance sheets cannot be leveraged thru traditional bank financing
Speak to a trusted, credible, and experienced business financing advisor with a track record of business finance success. Get the financing you deserve around your inventory and general financing needs.
' Canadian Business Financing With The Intelligent Use Of Experience '
7 Park Avenue Financial/Copyright/2021
Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil