Inventory Financing as a Working Capital Solution

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YOUR COMPANY IS LOOKING FOR INVENTORY FINANCING

AND WORKING CAPITAL SOLUTIONS! 

Unlocking Capital Potential: Inventory Financing in Canada

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        Financing & Cash flow are the biggest issues facing business today

                              ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

Email - sprokop@7parkavenuefinancial.com

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss    your needs

 

 

Inventory Financing as a Working Capital Solution for Canadian Businesses 

 

 

Introduction

 

If your Canadian firm relies heavily on inventory, embracing inventory financing should be a vital component of your comprehensive working capital loans/financing strategy to help cover business expenses and increase purchasing power.

 

Obtaining the necessary financing for inventory to sustain and enhance sales and profits has become increasingly challenging.

 

Working capital financing in areas such as inventory finance supports a business's daily operations, including expenses like inventory purchases. Unlike long-term loans that typically address overhead costs, working capital loans focus on meeting immediate and continuous needs.

Securing working capital financing can be pivotal in maintaining a sustainable business model.

 

Understanding Inventory Financing / The Essence of Inventory Financing

 

Inventory financing is the capacity of your firm to secure a short term loan advance or operating facility, depending on your inventory levels. Several key concepts must be understood for this process to be effective:

 

Banks might offer unsecured lines of credit, also referred to as a business line of credit. These unsecured lines are usually targeted toward small businesses.

 

Valuation of Inventory

The valuation of inventory requires an agreement between your business and the inventory financier regarding the worth placed on the stock.

 

The Challenge of Understanding Inventory

Understanding the real value of inventory, especially considering the diverse industries and business models in Canada, is complicated. This complexity lies in determining the true worth of a specific industry's inventory and how it could be remarketed if liquidated.

 

The Stance of Canadian Banks

Given these complexities, Canadian chartered banks often hesitate to advance significant financing against inventory based on their focus on risk mitigation. Any funding provided is usually formulaic, focusing on the overall operational, financial, and collateral situation and is often not a long term financing solution for the company.

 

Solutions for Canadian Business Owners

 

Canadian business owners need genuine inventory lenders who can determine the maximum funding against ongoing inventory, whether in raw materials, work in progress, or finished goods. Each of these categories requires specialized lender knowledge.

 

Specialized Inventory Financing Firms in Canada

Fortunately, there are firms in Canada specializing in inventory financing, including floor plan financing. However, the primary focus here is on pure inventory financing.

 

Benefits of Inventory Finance for Buyers:

 

• Borrowing Against Inventory: This enables you to secure financing against inventory in transit, offering flexibility in funding.

 

• Enhanced Working Capital Efficiency: Helps streamline operations by improving the efficiency of your working capital, allowing for better financial management.

 

• Liquidity Boost: Provides an immediate increase in liquidity, aiding in financial stability and growth opportunities.

 

• Supplier Relationship Strengthening: Ensures faster payment, fostering stronger supplier relationships and increasing trust.

 

• Negotiation Leverage: Improves your ability to negotiate favourable pricing on large purchases, giving you a competitive edge in procurement.

 

• Revenue based financing is utilized by some firms to fund inventory needs - It's a straightforward process based on companies that have good sales and profits and have cash needs versus the requirements around a traditional bank loan

 

• Purchase Order Financing - purchase order financing emerges as a valuable solution. P O Financing can enable the business to acquire the essential materials and fulfill the order successfully This innovative approach empowers you to expand your business by successfully undertaking orders that might have otherwise seemed financially daunting.

 

Working with a Trusted Canadian Business Financing  Advisor

 

Work with a trustworthy, credible, and experienced advisor in inventory financing, one capable of delivering a solution that complements or even replaces your current financing with an asset-based credit line. This specialized approach should maximize the total value of your receivables and inventory to vastly improve cash flow.

 

Inventory as a Competitive Advantage

When inventory is a crucial part of your company’s working capital financing and sales process, your ability to continually generate cash flow and working capital against this asset can become a significant competitive advantage for continuous growth and profits.

 

Conclusion

  

Inventory financing can be vital for businesses, especially when aligned with certain operational characteristics and market conditions. Here are the detailed scenarios when inventory financing becomes an attractive option:

1. High Inventory Turnover Ratio:

   • Definition: This refers to a high frequency of converting inventory into sales. A high inventory turnover ratio indicates that the business is efficiently selling its stock, thus lessening the time between buying the merchandise and receiving payment for sold goods.

   • Advantage for Financing: Lenders see a reduced risk with this ratio, as the inventory is quickly sold. This makes the business a favourable candidate for inventory financing, often leading to more favourable terms and rates.

2. Seasonal Demand Fluctuations:

   • Businesses that experience significant seasonal sales may need extra inventory during peak times. Inventory financing allows for the flexibility to stock up without straining cash flow.

3. Expansion Opportunities:

   • If a business wants to expand into new markets or launch new products, it may need to purchase significant inventory upfront. Inventory financing helps cover these costs, promoting growth without crippling the finances.

4. Irregular Cash Flow Patterns:

   • Companies with irregular cash flow can use inventory financing to ensure they always have products on hand, even when cash might be tight.

5. Leveraging Buying Power:

   • Inventory financing can empower businesses to make bulk purchases, qualify for volume discounts, and strengthen relationships with suppliers by ensuring prompt payment.

6. Crisis Management:

   • In times of unexpected challenges, such as supply chain disruptions, inventory financing provides a safety net, ensuring business operations continue without hindrance.

7. Startups and Small Businesses:

   • Smaller businesses, particularly those without a long credit history, may find traditional loans challenging to secure. Backed by tangible assets, inventory financing may offer a more accessible funding avenue.

 

Inventory financing makes sense not only when a business has a high inventory turnover ratio but also in various other scenarios concerning liquidity, growth, leveraging buying power, and crisis management. Understanding the specific needs and dynamics of the business is essential to determine when and how to utilize this form of financing best. By aligning inventory financing with business strategy, companies can enhance their financial agility and competitive edge.  

 

Inventory financing offers an optimal solution for working capital when understood and managed effectively. By seeking specialized guidance and tailored solutions, Canadian business owners can leverage inventory financing to fuel growth and prosperity in a demanding market.

 

Several financing methods necessitate a trade-off for the business owner, in some cases often involving a dilution in owner equity. For entrepreneurs who value retaining complete ownership of their business, short-term loans present a solution to financial difficulties. This allows them to address business financing challenges while still maintaining total control over their enterprise.

 

Call 7 Park Avenue Financial, a trusted, credible, experienced Canadian Business Financing advisor who can assist you with business funding needs.

 

FAQ

 

  

 What is inventory financing, and how can it benefit my Canadian business?

 

 Inventory financing is when businesses secure short-term advances based on inventory levels. It offers an optimal solution for generating working capital and sustaining growth for Canadian companies.

• • Asset-backed financing using inventory as collateral-  businesses pay interest only on funds that are drawn down
  • Funds are usually 50%-90% of inventory value.
  • Terms depend on inventory volume, turnover ratio,  annual sales level, etc.
  • Repayment period: 2-36 months.
  • Interest rates vary based on personal credit score/business credit score, inventory value, unsold inventory levels, etc.
  • Additional charges may include appraisal fees, origination fees, and prepayment penalties.

Through inventory financing, small businesses can access funds that might have otherwise remained tied up in unsold inventory. This capital can be utilized to cover business expenses or to purchase more inventory. 

Companies want to ensure they have enough inventory on hand as well as the ability to acquire more inventory when needed as well as having the ability to reduce costs of goods sold with good cash flow practices.

Inventory financing can assist a company via the supply of liquidity needed to buy its inventory. This financing method also helps them prepare for fluctuations in cash flow that are associated with payment terms and delivery times.

 

  

How is the valuation of inventory determined?

 

Inventory valuation is an agreed-upon process between the business and the inventory financier. Understanding the worth of the inventory is crucial for determining the right working capital finance solution and the amount that can be financed by the lending institution.   

 

 

Why do Canadian banks shy away from inventory financing? 

 

Canadian banks often find it challenging to understand the value of diverse industry inventories, making them cautious in advancing significant financing against it.

 

Can I use inventory financing for raw materials and finished goods?

 

Inventory financing can be applied to raw materials, work in progress, or finished goods. Specialized knowledge from the lender is required for each category.

 

What type of specialized firms offer inventory financing in Canada? 

 

Various specialized firms in Canada focus on inventory financing, offering tailored solutions for different types of inventory for businesses focused on capital raising and wishing to take advantage of innovative financing solutions to increase sales via a financing option that makes sense for their firm.

 

How can I find a trusted advisor for inventory financing?

 

Seek a credible, experienced advisor specializing in inventory financing who understands the Canadian market and can deliver solutions tailored to your needs.

 

Is inventory financing a good option for small Canadian businesses? 

 

Inventory financing is a viable option for Canadian businesses of all sizes, as it allows them to leverage existing inventory for working capital.

 

How does inventory financing contribute to competitive advantage? 

 

Inventory financing via a working capital loan solution enables continuous cash flow and working capital, providing a competitive advantage for ongoing growth and profits.

 

What are the risks involved in inventory financing? 

 

Risks in inventory financing can include incorrect valuation, over-financing, and potential issues in liquidation. Working with a specialized firm or advisor can help mitigate these risks.

 

Can inventory financing replace my current financing structure?

 

Inventory financing can sometimes replace or complement your existing funding with a more focused, asset-based line of credit, maximizing the value of your inventory and receivables.

 

How can inventory be utilized to improve working capital management?

 

By minimizing unnecessary inventory and enhancing inventory turnover rates, well-orchestrated inventory management becomes vital for boosting working capital performance. A more favourable net working capital ratio can be realized by reducing stagnant inventory, escalating inventory turnover cycles, and preventing excessive stock accumulation.

 

What are some other uses of inventory financing?

 

Inventory financing is a  beneficial financial solution tailored for companies facing specific circumstances:

1. Seasonal Operations: Businesses engaged in seasonal activities find inventory financing immensely advantageous. It aids them in effectively managing their production cycles, which often demand the immobilization of funds.

2. Cash-Intensive Production Cycles: Enterprises with production cycles that necessitate substantial cash investments can also greatly benefit from inventory financing. Particularly, these businesses must strategically plan for significant stock quantities to capitalize on cost efficiencies. This demands a considerable amount of cash.

The absence of appropriate inventory financing exposes such companies to significant financial challenges that could impede sales and profit growth.

Moreover, inventory financing plays a pivotal role for brands that source their products from distant locales like Asia. Frequently, these brands encounter the need to front substantial expenses before their inventory can be put up for sale.

 

 

Click here for the business finance track record of 7 Park Avenue Financial

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Inventory and Purchase order financing in Canada are two relatively unknown financing strategies for Canadian business owners and financial managers. The ability to complete an inventory and/or purchase order financing strategy allows you to produce more, distribute more effectively and in a cost-efficient manner, and also to buy smarter.

The ability of your firm to both buy smarter with additional capital, plus maintain the right level of inventories is a key factor in competitive success in your industry. INVENTORY AND PO FINANCING can be a stand-alone finance solution, or it can potentially be complementary to your current business financing.

The inability to secure supplier credit in the capacity your company needs is a constant challenge for many business owners. Vendors may often impose payment terms and conditions that simply can't be met and ultimately affect your ability to grow the business and profits. Sudden growth opportunities must be capitalized on or they go to your competitors.




Business owners and financial managers are required to determine what is their optimal financing for their inventory or client orders. Companies with solid P O 's from reputable clients are excellent candidates for PO Finance, while a general manufacturer who desires to build inventory levels on a constant basis should investigate the inventory finance solution.

KEY POINT - The least expensive form of financing is Supplier Financing - so the ability to get extended terms from valued suppliers is in fact the optimal solution, but often not available, necessitating the use of a funding company.




The ability to accept large new contracts as well as the ability of fulfillment to meet your client needs is the true benefit of INVENTORY/PO Finance and the services of inventory financing companies in Canada. Many firms that utilize this method of financing also have the ability to expand into the U.S. or other international markets, opening up massive opportunities for growth.

The ability to have access to capital and enter into new or foreign markets can be a game change to sales and profit growth for any business, Having financing in place to meet purchase order demands allows your firm to negotiate the best pricing and discounts available - in effect, you are ' pre-approved!

International purchase order finance can also benefit from the assistance of the Canadian government which has a mandate via EDC to supplement financing needs for Canadian exporters. A variety of industries can utilize this method of CANADIAN BUSINESS FINANCING and the ultimate solution is always tailor-made to your specific product and customer needs via a capable financing company partner.


P O Finance ensures that the financing in place is properly aligned with your payment terms to both your vendor as well as receipt of payment from your client. Numerous currency exchange issues are also dealt with within the PO order


It is important to understand both the similarities and differences in P O Finance as well as inventory finance solutions. Both function differently.

WHAT IS P O FINANCING?

Purchase order finance is directly related to a specific purchase order or contract and in essence, covers the goods directly related to the purchase order/contract. As a general rule only finished goods are financed under the P O funding mechanism, so no changes or modifications are allowed for the product. The entire process allows your supplier and vendor to be paid.
As a general rule purchase order financing is not for building inventory levels so a general manufacturing firm looking to increase inventory levels via financing would not look to PO Finance.
Purchase Orders are closed when product is shipped and accepted by the end client and invoicing creating a receivable occurs. At that point the a/r directly related to the order if financing in the normal course of business, depending on how the borrower funds receivables via a bank or financing companies in Canada.

Inventory Financing & Inventory Companies

Companies looking to leverage capital for build-up of inventories look to a sole inventory finance facility. The facility can be ' stand-alone ' or as part of a business line of credit or asset based lending facility. Therefore the inventories being financed are not specifically related to any one specific client. It is really a working capital solution for that critical part of your current assets on the balance sheet - inventory!

 Commercial finance lenders or a full service factoring company may choose to visit the borrower on a regular basis to ensure inventory is adequately maintained - companies should be capable of producing inventory reports and ensuring they have proper inventory accounting in place. For larger deals a lender might insist on a PERPETUAL INVENTORY SYSTEM being in place. Inventory can be a major portion of a company's cost of goods sold. ( COGS ). The ability to access capital to fund inventories is challenging and the ability to turn inventories is key to long term financial success.




One of the largest costs when it comes to operating a business in Canada is being able to purchase inventory. However, purchasing quick-turnaround inventory can be difficult for a new business owner. This is where inventory loans come into play.



Companies that tend to look for inventory solutions are distributors and manufacturers. Unlike our     P O Financing example inventory can be in various forms, which typically are raw materials, work that is in progress, and of course finished goods.

In the P O finance process credit adjudication is made on your firm and as well who you client and supplier are key aspects of the final approval to finance decision. When it comes to inventory is all about the valuation of your inventory vis a vis potential liquidation values in event of default from the bank or non-bank commercial lender.

As a general guideline a purchase order financing company will cover approximately 75% of the order from your client. Financing is directly related to the payment to your supplier. For most firms this will typically cover the majority of costs related to your order and it assumes that your company has good gross margins. P O Finance doesn't work well with low margin transactions as the transaction will not cover the additional financing costs. So have a gross margin in the 25-30% range is very desirable for this method of financing.

Companies that require general inventory financing for their ongoing business can get anywhere up to 70% of the agreed upon liquidation values of the inventory. In many cases some sort of third party appraisal might be required, but in general many inventory financiers are very familiar with inventory values and have significant expertise in certain industries. As a manufacturer your goal is to maximize on the funding value of the inventory.



Clients of 7 PARK AVENUE FINANCIAL ask us how they can finance inventory more effectively in their Canadian operations. Inventory financing in a traditional manner had your firm acquiring an inventory facility as part of your Canadian bank operating facility. If you are successful in obtaining such a facility one of the challenges is simply that this level of inventory margining is not sufficient to meet your needs. The very simple reason for this is that the traditional chartered bank does not necessarily understand inventory lending, which requires a unique focus and specialized knowledge of a wide variety of industries.


The best solution for an inventory financing facility in Canada is actually a dual solution.
You should finance inventory separately outside of your bank arrangement – this will give you additional margining with a finance partner who understands your industry and inventory financing needs. The other solution is to combine the inventory financing within a non-bank asset based lending facility that provides you with maximum margining on both inventory and receivables. Your facility operates just like a bank line, but you are receiving maximum liquidity via higher margining of both inventory and receivables.


By higher margining we simply mean that if you were getting nothing or say 25-30% on your inventory credit line you will probably be in a position to now receive between 40-80%. What does that mean? Of course, it signifies greater cash flow and working capital for the Canadian business owner.


A ‘true‘ inventory financing facility will now include margining against all three types of inventory:


- Raw materials

- Work in Progress

- Finished Goods


We caution you not to enter into an inventory financing facility whereby your inventory must be stored at a third party warehouse in order to receive financing consideration. We do not recommend clients pursue this type of facility.


A solid inventory financing facility will allow you to grow sales and increase your working capital base.


With respect to purchase order financing this is clearly another financing strategy that has emerged as growing and more popular in the Canadian business environment. It is not difficult to understand its popularity. Consider your firm has received a large domestic or international order but does not have the working capital ability to properly produce and deliver that order.


More often than not that is simply because of the cash flow cycle – your order is large, you require inventory and equipment to produce the order, after you have produced it you have to bill the order, and then, of course, you wait to collect your receivable. That whole process can easily take 60-120 days in any firm.


With purchase order financing your supplier is paid directly by the P.O. financier. You then receive materials and generate products for your customer. When you bill your customer that invoice must be discounted immediately in order that the purchase order financing firm gets paid. P.O. financing works best when you have a small number of suppliers, and you have good gross margins that can sustain the additional cost of financing the purchase order and then the receivable. It allows you to grow your business and stay significantly more competitive.

Almost any size or type of firm is a candidate for purchase order finance solutions, even less established or smaller firms - as a general rule in order to qualify for financing of inventory a firm should be established and have reasonable financials.

Many inventory finance needs can be accommodated as part of a business line of credit that finances both receivables and inventory as part of the facility. These solutions can come from factoring companies or asset based lending companies. The process of purchasing more inventory via an asset-based line of credit frees up capital for additional purchases. As your receivables and inventory turn you purchase additional products to sell. Firms that have unsecured credit lines have the ability to purchase goods in the normal course of their business.

WHY DOES INVENTORY FINANCE & PO FINANCE WORK?

Alternative lending solutions that we have described work for business for some very fundamental reasons :

Alternative finance is generally much easier to get than traditional bank financing, so solutions such as a receivables loan or non-bank credit line are very accessible

Inventory, a/r, and P O Financing ability grow almost automatically as your business opportunities grow

The ability to leverage asset financing often not available in traditional finance increases cash flow and working capital growth to fund day to day operations and growth opportunities



Business Funding via Purchase order financing, as well as inventory financing in Canada, are ‘boutique‘ in nature. We strongly recommend you investigate the benefits of theses financing strategies by talking to an experienced and credible advisor in this area of Canadian business.


7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

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 financing 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.


Click here for the business finance track record of 7 Park Avenue Financial







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Inventory And Purchase Order Financing In Canada

Purchase Order Financing In Canada

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THE PURCHASE ORDER FINANCE SOLUTION :

Purchase Order financing, as well as inventory financing, is two relatively new alternative financing solutions in the Canadian business environment. These two solutions provide additional flexibility when combined with traditional financing sources provided by your Canadian chartered bank or independent finance firm. Think of P O Financing as a short term finance options, allowing you to access capital to pay vendors and suppliers when you have a verifiable purchase order or contract.

WHAT IS PURCHASE ORDER FINANCING

It's a unique source of capital without giving up  equity. In P O Finance its all about the transaction specifically, providing you with the liquidity to grow your company without taking on additional debt. New clients at 7 Park Avenue Financial have quickly found that their current banking and funding arrangements formula are well beyond what they need in immediate financing. Let’s dig in.



P O Financing works very well in work-out situations, where the borrower’s existing bank/s do not want to finance all the purchase of the inventory as it goes beyond the borrowing formula set by the bank.



Traditional business and bank lending in Canada typically is unable to meet the SME need for financing of large purchase orders and contracts, and most clients we meet can't satisfy the bank requirements of collateral, strong financial statements, external guarantees, etc. Industry experts say that a significant percentage of all businesses requiring SME COMMERCIAL FINANCE solutions are constantly worrying about their cash flow, let alone the cash flowing of large new orders. Enter the P O FINANCE solution.

Who Uses Purchase Order Lending Facilities?

Growing and smaller and medium-sized businesses that have access to revenues otherwise not financeable utilize PO Finance - Your firm might not be able to generate the cash flow investment in a/r and inventory that comes with larger orders and contracts. The types of firms that use P O FINANCE are manufacturers, and distributors, as well as those firms that have an import/export business model. Typical clients looking for this type of creative financing have large bulges in incoming orders or some seasonality attached to their business.


Traditional business financing in the context of working capital and cash flow revolves of course around the traditional current assets of receivable and inventory. Even if your firm is well-financed and has a traditional bank line of operating credit you may have challenges in fulfilling large orders and contracts. This challenge becomes equally daunting when you don’t have traditional financing, so the ability to generate cash to fulfill larger orders and contracts becomes seemingly impossible. Utilizing P O Finance allows you to take on larger orders without the commitment of a debt financing/loan solution.


Purchase order financing/purchase order loans can provide you with the capital to fill those large orders and contracts, and, if properly put in place; can be very complimentary to your current financing.


As we have noted the concept of purchase order financing, aka ‘P.O. Financing ‘is a relatively speaking, new phenomenon in Canada.

HOW DOES P O FINANCING WORK?

So how do P O Loans work? Simply speaking financing is put in place to cover your material costs and direct labour costs, which are of course a significant part of your order or contract. We can safely say in many businesses that is 60-70% of the total order or contract based on most gross margins in any industry.

The purchase order funding process begins on your acceptance of an order from a verifiable customer. In the majority of these cases, clients of 7 PARK AVENUE FINANCIAL require financing because our client's supplier requires payment in advance. The working capital cycle has now kicked in! Most clients know that full payment from their client won't be received for probably another 60-90  days. Business owners of course do not want to lose the order and are typically unable to obtain Canadian chartered bank financing based on whatever their current financial position is.

The verified purchase order represents opportunity and value though - it simply requires accelerated funding. So in the P O FINANCE process your supplier is paid either by direct cash or in some cases a letter of credit with conditions related to your purchase order re-delivery, amount, pricing, etc. Key to P O Finance approval is your ability to present your company and management experience. It's safe to say the complexity of this type of financing is why it is more costly - there are a number of moving parts: timeline around the order and delivery, credit risk, etc.




Purchase order lenders distinguish themselves by being experts in the area of alternative finance. They have the expertise and ability to look at the entire order cycle, including the creditworthiness and legitimacy of your supplier/suppliers.

What Does The P O FINANCE Company Look For In Your Transaction? Applying For Purchase Order Financing

As we have mentioned P O FINANCE is a more expensive form of financing so your firm must be able to sustain the gross profit margins that satisfy your profits and the financing cost in the transaction. You should be able to provide the following at the commencement of your purchase order finance financing request:

Supplier Invoicing

Your firm's sample invoice to the customer

General business information such as financials, legal name of your company, etc



Your firm, therefore, now has the working capital to finance your production and fund purchase orders. What’s left of course is essentially the profit on your P.O. or contract.


While it sounds relatively simple and easy we would point out some key critical issues that will allow the Canadian business owner and financial manager to determine if his or her firm qualifies for such financing. We can first of all say there has to be sufficient proof that your purchase order or contract is with a valid, creditworthy party. Naturally, if there is any doubt that your order might not get paid, or that the customer is not creditworthy that precludes the successful completion of any purchase order financing.


You should also not view the purchase order financing as a long term financing solution, it is not that. The funds are generally repaid immediately when you have completed your order/contract.

PURCHASE ORDER FINANCING VS. FACTORING

There are also some technical issues that need to be addressed if you have secured financing arrangements in place already. For example, if your firm has a bank line of credit they would be required to acknowledge the security that is taken in the Purchase order and resulting receivables that you create out of that order.


In our own experience Purchase order financing frankly works best when there is not a secured lender in place already, but that’s just our firm’s observation. Additionally, on occasion, certain other collateral or personal guarantees might be required. We would hasten to add that if you have already provided guarantees to the bank or other firms it would seem logical that you would provide them on the purchase order financing, which is somewhat of a riskier transaction for the lender.

Most clients at 7 Park Avenue Financial realize that purchase order finance companies are really providing a one-stop funding that takes you all the way from the order to the collection of the receivable. Note that P O loans that allow you to fund purchase orders is often very well received by suppliers who know they are going to be paid. Also government purchase order financing is also available.


Another very critical point is the whole issue of gross margin. The issues are that you need good gross margins to complete purchase order financing! A firm that is in low margin very commodity-oriented business is not a strong candidate for P.O. Financing, because the combination of cost of goods, labour, overhead costs, and financing costs of the financing leaves very little for the business owner. So categorically good gross margins make a much better P.O. Financing deal. Costs in P O FINANCE tend to be different for each transaction based on a number of factors including the cost of capital, time to complete the order, etc. International purchase order financing may also bring new complexities to your transaction regarding sovereign risk.

So for the business owner and financial manager looking at purchase order financing lenders it is important to weigh the costs and benefits of your transaction. In many cases larger P O 's and contracts are a key part of company growth plans so they are prepared to forgo some profit to achieve sales goals. In many cases traditional financing simply can't react quickly enough to satisfy the timelines of your order. So alternative finance solutions such as P O Finance, Inventory Financing and A/R financing solve your financing need.. quickly.


So why has this type of financing become popular – that’s fairly easy to understand. First of all the current Canadian business financing environment is challenging – therefore any alternative financing vehicle has a strong chance of being embraced and becoming more popular. After that it simply makes sense that p.o. financing can be very successful for your firm if it gives your company working capital you didn’t have, , it allows you to grow and profit at greater levels, and overall improves your competitive positioning within your industry.


We strongly recommend that if you consider Purchase order financing that you enlist the services of a trusted, credible and experienced Canadian Business Financing Advisor with a track record of business finance success who can assist in maximizing your cash flow and working capital with this unique innovative type of financing.






7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

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 financing 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
7 Park Avenue Financial/Copyright/2020

Inventory Financing Companies In Canada

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Quick Guide To Inventory Finance & Working Capital

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 what 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 firms 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 simple 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 business 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 its worth, by experts who categorically know what its worth. You will enhance your ability to finance your product if you have the controls, reporting, and inventory accounting system in places that makes 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.



7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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

How Does Purchase Order Financing Work vs Traditional Financing : Finance Your Orders & Inventory

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Information on Purchase Order Financing & Inventory Finance Companies

Purchase order financing is a relatively new addition to the Canadian business landscape . When utilized successfully it allows companies to take advantage of major opportunities that might otherwise not be possible .

Typically purchase order financing is most relevant to companies that are unable to obtain capital either in the amount required or at favorable rates . The financing is especially suited for firms such as importers, distributors, and manufacturers.

Other forms of financing highlight a clients historical financial results . P O finance looks to the future, without the collateral need that the former results require.

How does the financing work ? In essence the purchase order financier purchases the materials required by the client for their order or contract . Many transactions are time sensitive for the client , and the type and amount of financing required do not lend themselves to traditional lending time frames re due diligence required , etc . In essence the client is using the lenders capital to finance future growth .

A simple breakdown of the transaction flow on a purchase order/contract financing is as follows :

* Company obtains a large contract or purchase order
* Payment is made by lender to the supplier directly
* Suppliers ships goods/product
* End user customer acknowledges receipt
* Company's receivable lender ( usually a bank or factor firm ) pays purchase order finance firm


It is important to note that purchase order financing usually focuses specifically on the order or contract . The client requires an additional credit facility in place in order to retire the receivable and payback the purchase order financier .

Our experience is that a purchase order finance firm is looking for a longer term relationship, this is not a one shot deal business .

In the current banking and lending environment, with more increased focus on risk, it has been very difficult for firms to get traditional bank type financing for large new orders and contracts . Most firms quickly realize that banks prefer more stable predictable growth, and large new contracts or orders are challenging to financing when they significantly increase a banks exposure . Needless to say that foreign aspects of many purchase order transactions only exacerbate that issue - i.e. how does a supplier in China get paid, or even ' vetted '.

Our experience is that purchase order/contract financing only works when the client has solid gross margins that can handle the additional financing expense .

Customers looking to finance purchase orders and contracts need to focus on solid partnerships with firms that have capital, experience, and relative ease of doing business re paper flow, documentation, etc . The proper mix of those attributes will foster a solid business relationship that is mutually profitable for all within the unique purchase order financing realm .


Hand in hand with P O financing we at 7 Park Avenue Financial find that more and more Canadian firms require inventory financing as a component of their business and sales growth . Inventory financing in Canada is relatively under utilized and most business owners don't understand how it works . This new form of financing is growing .

Inventory growth needs put financial pressure on the balance sheet as vendors and suppliers continue to dictate payment terms in order to meet their own business and profit goals . As more financial managers know the ability to turn inventory over as many times as possible is a significant operating measure for any firm .

A company computes its inventory turns by simply dividing the ' Cost of Goods Sold' by the amount of ending inventory and ending up with a turnover rate . The rate of inventory turns is never an absolute number , as different industries have different acceptable inventory turns . Also, we should note that there are sometimes different inventory components - i.e. raw materials, work in process, and of course the final finished goods .

Many Canadian, ( and U.S.!) firms moved significant purchases to China in the last number of years , As China has changed its banking policy, and has also been a victim of the world liquidity crisis , more and more Chinese manufacturers are not willing to carry accounts receivable in the manner they did several years ago .

The crux of the inventory problem issue for any firm is the inability of the company to convert orders into sales simply because they don't have the inventory to satisfy their customers . Without orders the firm has no financeable asset . Day to day cash flow rarely is enough to generate significant additional inventory purchases.

The ability of a inventory finance firm to finance required inventory in turn allows a firm to generate receivables which are converted in true working capital .

An inventory finance firm will evaluate the company's overall prospects , its management, inventory controls, etc and determine what per cent of the companies inventory can be financed . To take the matter further a lender might, on occasion, require the inventory to be inspected at regular intervals, or in extreme cases, held in a separate location under the control of the lender . The inventory lender is looking for an acceptable business model which is replicable . Generally speaking inventory financing is never done on a ' one shot deal ' basis.

The risk in this type of financing is reflecting in the pricing . Normally the only other way a company could attract capital to generate high inventory levels is to issue additional equity . This is categorically more expensive than debt, or in this case the inventory financing cost .

They types of companies that require inventory financing are usually in the following categories :

1. Growing importers who sell wholesale in North America

2. Importers who sell to consumers

3. Intermediaries who purchase product and ' flip ' the inventory to someone else

4. Manufacturing firms with fast turnaround business cycles

They also have good gross margins which can withstand the more expensive cost of this type of financing .

In summary , inventory financing is a growing component of business financing . It works well in certain industries . Most firms who require inventory financing are either start ups, or those who cannot get traditional bank financing . ( In our experiences banks can rarely, if ever, meet a company's inventory margining requirements .

If you are looking for purchase order finance solutions seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success.



7 Park Acvenue Financial:
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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

Inventory Financing Companies - The Inventory Finance Loan Solution !

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Get Ready For Inventory Financing & Accounts Receivable Finance Solutions !

More and more Canadian firms require inventory financing as a component of their business and sales growth . Inventory financing in Canada is relatively under utilized and most business owners don't understand how it works . This new form of financing is growing .

Inventory growth needs put financial pressure on the balance sheet as vendors and suppliers continue to dictate payment terms in order to meet their own business and profit goals . As more financial managers know the ability to turn inventory over as many times as possible is a significant operating measure for any firm .


A company computes its inventory turns by simply dividing the ' Cost of Goods Sold' by the amount of ending inventory and ending up with a turnover rate . The rate of inventory turns is never an absolute number , as different industries have different acceptable inventory turns . Also, we should note that there are sometimes different inventory components - i.e. raw materials, work in process, and of course the final finished goods .


Many Canadian, ( and U.S.!) firms moved significant purchases to China in the last number of years , As China has changed its banking policy, and has also been a victim of the world liquidity crisis , more and more Chinese manufacturers are not willing to carry accounts receivable in the manner they did several years ago .


The crux of the inventory problem issue for any firm is the inability of the company to convert orders into sales simply because they don't have the inventory to satisfy their customers . Without orders the firm has no financeable asset . Day to day cash flow rarely is enough to generate significant additional inventory purchases.


The ability of a inventory financing companies to finance required inventory in turn allows a firm to generate receivables which are converted in true working capital .


An inventory finance firm will evaluate the company's overall prospects , its management, inventory controls, etc and determine what per cent of the companies inventory can be financed . To take the matter further a lender might, on occasion, require the inventory to be inspected at regular intervals, or in extreme cases, held in a separate location under the control of the lender . The inventory lender is looking for an acceptable business model which is replicable . Generally speaking inventory financing is never done on a ' one shot deal ' basis.

The risk in this type of financing is reflecting in the pricing . Normally the only other way a company could attract capital to generate high inventory levels is to issue additional equity . This is categorically more expensive than debt, or in this case the inventory financing cost .

 

 

The Top Ways to Succeed in Inventory Financing

They types of companies that require inventory financing are usually in the following categories :


1. Growing importers who sell wholesale in North America

2. Importers who sell to consumers

3. Intermediaries who purchase product and ' flip ' the inventory to someone else

4. Manufacturing firms with fast turnaround business cycles


They also have good gross margins which can withstand the more expensive cost of this type of financing .


In summary , inventory financing and accounts receivable finance is a growing component of business financing . It works well in certain industries . Most firms who require inventory financing are either start ups, or those who cannot get traditional bank financing . ( In our experiences banks can rarely, if ever, meet a company's inventory margin requirements . Seek out and speak to a trusted, credible and experienced  Canadian business financing expert who can assist you with your business finance needs.






7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value added financing consultation for small and medium sized businesses in the area of cash flow , working capital , and debt financing .



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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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