This is a good news / bad news situation at its best classic. Your company has the ability to receive orders or contracts, but you are challenged by the restrictions or unavailability of inventory financing and the purchase order). Financing a company based on assets such as inventory and future orders has never been a challenge in Canada.
When we talk to customers, we advise that there is not a unique method that seems to manage all inventories and financial challenges. But the good news is that, via various effective business financing tools that you can use, you are able to generate working capital and cash flow from these two asset classes. Let’s look at some actual global strategies that make sense for customers.
The root of the problem is simply that you have orders and contracts, but these will be potentially lost for a competitor. Conventional wisdom is that you go to your bank and have funding to support inventory and purchase stocks. As you may have lived, we are not big believers about conventional wisdom about it!
However, using a source of financing for the purchase order of the Convention allows you to buy products and charge your suppliers, thus facilitating the ability to deliver to your customers.
One of the main advantages that many customers do not realize is that inventory financing and P o financing necessarily requires your business to have a long or strong credit history; The focus on the structuring of the transaction is around the inventory being the financing and the general credit value of your client, which will pay you or the financing company of the inventory or financing p.
The global process is simply simply and easy to understand when it comes to putting the transaction together successfully. Upon receipt of your confirmed purchase order, your supplier is paid via money or a letter of credit. Your company completely completes the final expedition of the product, which usually involves additional duration on the part of your businesses. On shipping and payment of your customer from your client, the transaction is in effect set. In a true PUR financing scenario, the funder P o is paid immediately on your product billing. This facilitates the sale of the claim via a factoring type transaction as soon as you have generated the invoice.
There are always limitations to this type of financing – things we are looking for early in the transaction are the ultimate remark capacity of your product in case there is a risk of transaction. Naturally, as we have said, your client’s overall credit is essential, its receipt of goods and payment in force closes the transaction.
Inventory financing and PO financing are generally more expensive than traditional financing, mainly because of the significant transaction risk that the lender takes. As a result, we recommend that your business have solid gross margins in the range of 25% to cover the associated costs of PO financing, a financing transaction of stocks that also factors needed to be paid by your client. , as this usually adds 30-60 days throughout the transaction cycle.
If there is a large part of the “secret” we share with customers, it is simply that the best method for ensuring the financing of how we emphasized is to consider a line of credit based on the assets. Coupled with an installation that will finance your purchase orders This is the ultimate working capital tool that will allow you to develop business quickly and significantly. This type of installation is usually a non-bank installation and is offered by independent financing companies.