Like many things in business and in life, moderation is the key to success. Take for instance your business’s inventory. Too much inventory can weigh negatively on your business leading to extra storage costs and product spoilage or obsolesce. On the other hand, too little inventory is also problematic resulting in too few sales, loss of customers, and low market reach. After all, those in the business know having just the right amount of inventory for your company is the holy grail of the manufacturing industry.
Use Your Inventory to Pay for Your Inventory with Inventory Financing
But thanks to inventory funding, your finished goods can serve another function for you in your business cycle. If you are looking to get cash immediately for your business due to poor cash flow, a seasonal manufacturing cycle, an unplanned business opportunity or order fulfillment, your inventory can help. Essentially a short-term loan, inventory funding lets you use the products (inventory) you are slated to buy as collateral for the purchase itself. So your inventory serves as collateral for the purchase of that inventory. Should you fail to make payment, the lender then gets to take over the inventory as the contract stipulates.
Inventory Financing Can Stave off Cash Flow Gaps
An inventory financing loan is widely used in the manufacturing sector though it can be used with other industries as well. According to Entreprenuer.com, inventory funding is especially popular for those businesses that deal with food and beverage products or those that must move product expediently through the manufacturing cycle. If your business is regularly in a situation where your suppliers demand payment before you are able to collect payment from your customers, you are at risk of running out of cash and possibly running your business to the ground.
By working with inventory financing lenders, you can get this cash sooner by putting up said product (or inventory) as collateral, and then using the cash in hand to pay those suppliers and keep them happy. When your customers finally pay you, you can pay off the inventory loan (and its percentage) and put the remaining in your pocket.
Many times, traditional banks serve as inventory financing lenders as do other financial outfits such as invoice factoring companies. Rates, processes and procedures for financing inventory vary so shop around to secure the best match for your company’s needs.