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Purchase Order Financing & Inventory Financing In Canada - A Thing Of The Past? Not Really !!
Information on acccess to inventory financing and po financing for companies in the small to medium enterprise sector in Canada
Inventory and Purchase order financing
are two of the most sought after and challenging financing strategies for Canadian business owners and financial managers. The reality is that if you can ensure you don’t have adequate working capital and cash flow to finance inventory, and of course receivables, your business will be ham strung in respect to your ability to grow sales and profits.
The essence of an inventory financing strategy is to ensure that you have capital and cash flow as part of a revolving facility or loan to purchase inventory from your valued suppliers, and convert that inventory into receivables, cash, and of course profits.
Inventory financing and purchase order financing in Canada comes in various forms. The most traditional form it comes in is of course as a component of your bank operating facility. Canadian chartered banks ‘margin ‘receivables and inventory. The challenge in the global financial climate of 2010 is of course your firm’s ability to negotiate such financing on terms favorable to both yourself and the bank.
In our experiences banks tend to me for focused on lending on receivables, which can easily be converted into cash. The harsh reality is that many banks and lending institutions in Canada don’t understand the true value of your inventory, and quite frankly we think they can be forgiven for that , given the multisided of industries in Canada, as well as the fact that inventory comes in three components .
The three components of inventory are raw materials, work in process, and of course finished goods. The mix or ratio of those three components is going to vary in each firms industry.
Our own experience is that when our clients can generate inventory financing as a part of their overall operating credit strategy is they usually come up with something in the 40% range. That is to say that your bank will advance, at any given time, up to 40% of the inventory that you are carrying at your cost. This tends to be a comfortable buffer for the banks, but in many cases doesn’t provide the cash flow and working capital you need to grow sales and profits. We hasten to add of course that bank operating facilities that include an inventory component are closely tied to the overall financial health and financial perception of your firm.
Are there other solutions for inventory and purchase order financing in Canada .Yes, there are, we can also certainly say they are limited. We suggest you align yourself with a business financing expert who can explain to you those methods, which include a straight separate purchase order or inventory financing facility that is outside of your banking arrangements. In those cases the experienced p.o. and inventory lender will determine a valuation on your particular inventory and lend against that. In most cases this simply involves paying your suppliers up front for your inventory needs, while they collateralize your inventory and the receivables that will flow out of that inventory. This type of financing is expensive, but has to be benchmarked against the possibility of your firm losing sales, contracts, and competitive stance in your marketplace.
At the end of the day Canadian business owners and financial managers have to simply address the following issues:
Is my firm losing valuable sales and contract opportunities to competitors due to our inability to finance and pre pay inventory
Are we prepared to lower our overall gross margin by 2-3% points in favor of increasing sales and profits? Speak to a trusted, credible and experienced business financing advisor in this area : A rational inventory financing strategy can then be developed around those two key points.
7 Park Avenue Financial :
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
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