The Impact of Inventory Finance on Cash Flow and Business Growth

In the case of an inventory loan, the business receives the funds as a lump sum. Repayment occurs through regular payments. When issued as a line of credit, inventory finance offers ongoing access to funds. A company can draw from the line of credit as they need; once they repay that amount, it’s available to use again. Interest is assessed on the amount drawn.

Companies can use the cash from inventory financing for any need they have. The inventory finance impact on cash flow and business growth can be transformative.

Cash flow

Inventory finance can improve cash flow in many ways. Examples include:

• Provide working capital solutions. Cash on hand can help with day-to-day and operational expenses. And, without those concerns, business can more easily keep focus on overall growth initiatives.
• Advance purchases. Seasonal businesses can use funds from inventory financing funds to purchase inventory they need to stock for their busy seasons. A wide range of companies – in industries ranging from retail to agriculture – are routinely in the position where they need to make these kinds of advance purchases.
• Cover gap needs. For companies with gaps between cash expenditures (such as for inventory) and receipts from sales, inventory finance can supply the funds to pay suppliers. Beyond seasonal businesses, this situation occurs in many different types of industries. In transportation, for example, dealers must purchase vehicles long before they sell them. Inventory financing – typically referred to as floorplan financing in the vehicle dealership sector – offers that gap funding and allows dealers to prepare for the annual roll-out of new models,
• Volume discounts. Available cash may provide the means to make volume discounts at a discounted price.
• Meet demand. Readily available cash means a company can maintain supply of goods when demand rises – even in shifting market conditions. Avoiding out-of-stock conditions leads to greater sales and increased customer satisfaction.

Business growth

Growth opportunities don’t always come up on schedule. Available cash gives companies flexibility to take advantage of them when they surface.

• Introduce a product or service, or upgrade an existing one. New-product development and market introduction is expensive, yet necessary to maintain or gain a competitive edge. Inventory financing can offer a way to manage technology, research and development, manufacturing and/or distribution, intellectual property, employee education, marketing and communications costs.
• Develop new markets for existing products and services. Reaching new customer segments may not require research and development activity, intellectual property work or new technology. But it could require market research, adjustments in manufacturing, creation of new distribution channels and rollout of communication programs. For example, a manufacturer may want to build out a distribution network. That transportation dealer mentioned above may want to create a retail program for its dealers.
• Expand geographically. Business expansion into new geographic areas also requires upfront costs. Inventory financing funds can provide the means to lease new offices, hire and train employees, and pay for other set-up costs.
• Provide customer financing. In some industries, businesses help their customers finance their own purchases, thereby generating more business and greater loyalty. They may be able to use inventory financing funds to create a customer financing program.
• Pursue an acquisition or a merger. An acquisition can sometimes afford the smartest, fastest, most cost-efficient growth trajectory. Inventory financing can make makes available quickly so that companies can consider timely acquisitions.  

Key benefits

Using inventory financing monies to purchase parts and raw material is effective. But putting financing to use with an eye on optimizing cash flow and increasing growth potential will greatly expand its benefits.

Businesses can leverage unsold inventory to increase their purchasing power, meet customer demand, develop new market segments and even fund an acquisition. Tailored inventory financing programs based on detailed understanding of a company’s industry, market and business model can serve as an important strategic tool.

Here at Mitsubishi HC Capital America, we understand that working with the right financing partner can make a significant difference in cash-flow management and the ability to grow your business. When you are ready to discuss how customized inventory financing solutions can help you achieve your cash-flow and business growth objectives, let us know.