A form of commercial finance that is used in conjunction with invoice factoring is called inventory finance. This is when a company selling products ends up having to stockpile enough inventory to make sure their distribution network can be fulfilled on a normal basis. Product is manufactured pro-actively based on the potential demand of the marketplace.
Unfortunately inventory finance is available only to seasoned companies that have at least $500,000 worth of purchased inventory on hand on a regular basis. It’s not for start-ups. To finance inventory the whole distribution apparatus must be in place and show enough history to support the low risk nature of doing the transaction. We don’t want to be out selling your inventory in the case of default, so the qualifications are fairly stringent.
Typically financing inventory offers a 50% of the purchased value revolving line of credit to the small business which allows them to go out and purchase more inventory. Factoring is partnered in as the collection component and is an important aspect of process.
A small business considering inventory financing should expect a hefty up front due diligence expense that covers appraisal of the inventory and audit of the financials. For a company handling millions of dollars of inventory this would not be un-expected.
Like most forms of commercial finance, it is a tool that used in the right situations can greatly influence and expand a small businesses success in their industry. Call us today for more information to find out if your company might qualify.