5 ways inventory financing can help grow your sales
Inventory financing will help you increase your sales and release tied-up assets. Here are five ways it can help you achieve this.
Last updated: 02.05.2022
Inventory financing typically looks like a line of credit that is tied to inventory. It allows companies to produce inventory above what cash-on-hand would allow and prevents growth-killing scenarios from halting the momentum of a growing company. With inventory financing, companies use the acquired funding to increase available stock and payback later once the funded inventory begins selling.
Common uses of inventory financing and what it is
This type of financing is primarily used by these types of businesses, though any product-based company can use it:
Distributors and wholesalers
Businesses with high seasonal demand
For those new to the idea of inventory funding, you can easily consider it a method of financing your business in the same way that you might pursue:
Merchant cash advance
Lines of credit
Commercial business loans
Accounts receivable factoring
Purchase order funding
For businesses that fall into any of the above categories and are either using or are considering using any of the above funding types, you can join a growing number of businesses leveraging inventory funding to help support strategic growth.
The funds may be used to improve order turnaround and delivery, expand into additional regions or markets, support seasonal demand, introduce new product lines, or simply eliminate the cash flow pinch caused by the lead time between ordering inventory and when it lands.
Leveraging inventory financing to prevent stock-outs
While being out of stock is a great sign you’ve developed a product consumers love, that silver lining doesn’t soften the blow of knowing you’ve missed out on available sales and revenue because there wasn’t enough stock to meet customer demand.
Similarly, when you receive a purchase order from a large chain store — the golden ticket you’ve been working so hard toward — but don’t have the funds on hand to produce the ordered goods, inventory financing allows you to take advantage of the opportunity to scale.
How inventory financing helps businesses
Inventory financing is a strategic resource for businesses of all sizes. Designed specifically for businesses that need to overcome uneven demand curves or long lead times, this resource helps growth-oriented companies expand while preserving cash on hand. This tool has become an increasingly important resource to support growth.
Here are five ways inventory financing helps small businesses grow and resolve funding issues:
Inventory financing helps companies prepare for busy sales seasons. June cash flow can look insufficient to fund inventory you’ll need for holiday sales, but that’s around the time you’ll begin placing those holiday inventory orders. Without inventory financing, businesses like these would be unable to prepare to meet holiday demand adequately.
Using this tool properly, businesses of all sizes can fund the production of goods and pay those dollars back as future inventory sells. This is especially important for businesses with highly seasonal sales or who experience a significant holiday surge as it allows you to maximize high-potential sales seasons even when payment for production falls during a slower cash period for the business.
Inventory financing makes it easier to invest in growth areas without sacrificing production runs. It takes more than just products on a shelf to make a business run. There are set expenses, but there are also equipment upgrades, investing in small businesses MRP, marketing expenses, and other costs that rise as your business scales. As you grow your business, you’ll likely target a shortlist of growth initiatives you believe will carry you to the next level.
The projects you’re targeting likely range from expanding product lines to hiring additional help, or perhaps increasing marketing efforts, or onboarding a fulfillment partner that can help you keep up with demand. Don’t choose between investing in growth activities and producing inventory. Using inventory funding unlocks cash usually tied to inventory purchases to invest in the areas you need for growth.
Inventory financing overcomes limited loans and lines of credit. Unfortunately, younger and smaller businesses often do not qualify for traditional lending that meets the full funding needs for inventory runs large enough to seize growth opportunities fully. Inventory funding allows companies in these categories to pay for production runs and use the inventory produced as collateral to back the funding. As the items sell, you issue payment back to the funders, equipping you with the capital to produce inventory with payment terms that match natural sales cycles.
Inventory financing injects working capital into your business. By using tools like Kickfurther, you can use inventory as collateral for working capital that allows you to reinvest where your business needs it.
Inventory financing puts an end to waiting on invoiced payments to arrive to grow. Inventory funding permits the purchase of inventory on an as-needed basis, allowing you to take advantage of opportunities that quickly materialize and can’t be delayed until invoiced payments arrive to bolster your financial position. The flexibility to seize opportunities creates the nimbleness needed to maximize sales of a hot product or fulfill a surprise purchase order. Scaling companies agree seizing opportunities is imperative for increasing sales.
Inventory financing terms
Inventory financing allows businesses to draw needed funds to capitalize on growth opportunities and typically falls into one of two categories. Though, you will most often hear it referred to without either of these qualifiers: WIP and PO financing. With Kickfurther, you can also get reimbursed for recently funded inventory.
WIP Financing: Work-in-process (WIP) financing is a type of inventory financing where the lender often pays the contractors or suppliers directly for the manufacturing of your goods.
PO Financing: With purchase order (PO) financing, you provide a purchase order to the lender, ideally from a retailer with a solid credit rating, and the lender finances the fulfillment of that specific order.
With Kickfurther, you do not need an active purchase order to receive funding, though we can help fund inventory for an active PO. To qualify, the main factors include your revenue over the trailing 12 months and how you warehouse your products (self-warehouse versus a third-party logistics company (3PL)).
Picking the right inventory financing option
Financing inventory is smart for companies with a large cost center associated with manufacturing or inventory. As always, picking the correct financing option and partner for your business is key. To determine which option is best for your needs, consider the following:
When is the cash needed? Is it necessary to have on hand to start production, at the point of shipment, or at some point thereafter?
Are you using the cash to pay for inventory, free up working capital, support marketing, or another purpose?
How and when would you like to repay the money?
How much money do you need?
Answering these questions will help you identify your funding goals to make a better decision around this important matter.
Inventory financing helps small businesses
As larger retailers push to extend payment terms from Net 30 to Net 60 or even Net 90, many small businesses miss growth opportunities because they are waiting on invoiced payments. While factoring is an option, it may be more costly depending on the business age and type of receivables.
In addition, for companies in growth mode, a direct line to increasing sales and revenue comes from producing enough inventory to meet market demand. Inventory funding enables companies to produce additional inventory without sacrificing needed investment in operations, marketing, or equipment.
Need help getting started? Email or visit Kickfurther to learn about accessing working capital needed to grow your business and produce inventory that meets demand.
This is a guest post from Kickfurther, the first inventory funding platform where companies fund between $20,000 to $1,000,000 of inventory in as little as an hour at rates that are often 30% lower than competitors on rates and terms that work better for natural cash flow cycles. Use Kickfurther to access volume-ordering discounts and make no payments until sales begin.
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