When it comes to sourcing funding for inventory purchases outside of banks where do you turn?
Alternative trade financing providers can be hard to find, especially ones that fit your specific supply chain requirements. Luckily we’re going to show you two ways that successfully work and are on offer right now.
Below are two inventory financing products you should be searching for:
1. Purchase Order Finance
Suited to businesses that obtain purchase orders from customers and need to pay suppliers overseas.
Purchase order finance is a powerful funding tool that isn’t reliant on your business health or property assets. The strength of your supply chain and customers determines your eligibility.
Imagine being able to pitch for business, knowing you can utilise the finance and collect the profit once the customer/s pay for orders.
One of the most attractive features is not having to make any repayments during the supply chain journey. This makes it the perfect capital enhancer, funding goes out the door on day one and is simply repaid by customers.
What you’ll need:
- Confirmed orders
- Purchasing finished goods (not raw materials)
- Supply only to customers (not subject to installations)
- Using a reputable 3rd party logistics company
- Ability to buy inventory and grow sales not being limited by existing capital.
- Allows companies to grow without increased bank debt or selling equity.
- Helps ensure timely deliveries to customers.
- Increase market share by pitching for new deals backed by finance.
- Allows companies to make larger profits by fulfilling larger orders.
- Provides overseas manufacturers assurance to start production of goods
- Helps when seasonal sales spikes strain cash flow.
Being smart with your own working capital is the key to liquidity, that’s where PO Financing comes into play
2. Cargo Finance
Relatively new on the scene in Australia, Cargo Financing is used by importers to take advantage of capital already locked away in inventory sitting on the water or third party (3PL) warehouses.
It’s designed to inject cash flow back into companies that need more working capital tied up in inventory back into new opportunities
How it works:
The cargo financier provides a credit line against confirmed supplier invoices and once the shipment has left the point of origin, funds are disbursed to the importer for use.
Importers can then use the funds to purchase more inventory or cycle funds to pay suppliers earlier at better terms or obtain discounts. Funds can also be used for traditional working capital expenses as well.
Why use it over purchase order finance? A large portion of inventory purchasing is not pre-sold to end customers. This inventory will be paid for and delivered to sit in warehouses, distributed as required. This scenario doesn’t suit purchase order finance, simply because there are no confirmed liquidity events (sale of goods).
The financier relies on the strength of the buyer, goods and overall transaction to determine risk. Cargo financiers generally seek to fund importers with a good track record of turning stock over.
Liquid working capital is critical to a growing business. It can make or break operators when not managed correctly. Having two funding tools at your disposal can inject third party funds into the supply chain without impacting operational cash flow.
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We regularly share our thoughts on trade finance, lending, company culture, product strategy and design.
Stak works with clients that sell to some of the largest buyers in Australia & overseas.