Calling (517) 500-5442 or sending the request form gets it started.
Inventory financing funds stock bought ahead of sales or jobs, and the stock itself can secure it. It suits a purchase that turns into revenue within months. Funding partners decide on any advance share, rate, fees and term.
At a glance
- Pays for
Goods for resale and job materials
- Secured by
The stock, if the partner requires it
- Paid off
As the goods sell or the jobs bill
Inventory financing in plain terms, using an Adrian, MI hardware store's paint and fastener reorder
Inventory financing is money used to buy stock, paid back from the sales of that stock. The goods can serve as collateral, so a funding partner may look at what is being bought, how it sells and how long it sits on the shelf.
Illustration only, invented figures. An Adrian, MI hardware store places an $18,600 reorder of paint, fasteners and hand tools. Spread over nine months at 12.85% a year, the payment is $2,178.89, and the nine payments total $19,610.01, of which $1,010.01 is interest. The store compares that cost with the margin it expects from the reorder before it signs.
A purchase order financing example from a Lenawee County, MI embroidery shop with a jacket order
Purchase order financing steps in between a signed customer order and the supplier who must be paid to fill it. The funder is paid back when the customer pays, and its fee takes the place of interest.
Illustration only, invented figures. A Lenawee County, MI embroidery shop wins an order for 260 work jackets at $90 each, $23,400 in all. The blank jackets cost $46 apiece, $11,960, which the shop does not have on hand. A purchase order funder pays the jacket supplier, charging 3% for each 30 days its money is out.
- Days from the supplier payment to the customer paying in this invented case: 55, which counts as 2 periods of 30 days
- Fee: 3% of $11,960, twice, or $717.60
- Left from the $23,400 order after the blanks and the fee: $10,722.40, before thread and labor
If the customer paid in 28 days instead, only one period would apply and the fee would be half as large.
Inventory financing companies, sorted by how each structure is paid off, for an Adrian, MI auto repair shop
Inventory financing companies offer a handful of structures, and the right one depends on how the stock turns into cash. An Adrian, MI auto repair shop that signs a service contract for a local plumbing company's vans needs filters, brake parts and batteries on the shelf before the first van comes in.
| Structure | How the money arrives | How it is paid off | Fits |
|---|---|---|---|
| Term financing for one stock purchase | One lump sum for the order | A level monthly amount to the end of the agreed term | The first stock bought for a new contract |
| Revolving inventory line | Draws as parts are bought | Each draw paid down as the parts sell | Parts bought again and again |
| Supplier terms | The supplier ships before payment | The invoice due date, such as 30 days | Small orders from one supplier |
For the shop, a single term purchase fits the first stock the contract needs, while a revolving line fits the refills that follow. Any structure, limit and rate comes from the funding partner reviewing the request.
An inventory financing example for a Lenawee County, MI landscaping company buying nursery stock
Illustration only, invented figures. A Lenawee County, MI landscaping company orders $13,200 of trees and shrubs from a wholesale nursery for planting jobs it has scheduled. It finances the order over five months at 12.35% a year and bills its customers as each planting is finished. The table shows how each payment splits between interest and the balance.
| Month | Payment | Interest | Principal | Balance after |
|---|---|---|---|---|
| Month 1 | $2,722.07 | $135.85 | $2,586.22 | $10,613.78 |
| Month 2 | $2,722.07 | $109.23 | $2,612.84 | $8,000.94 |
| Month 3 | $2,722.07 | $82.34 | $2,639.73 | $5,361.21 |
| Month 4 | $2,722.07 | $55.18 | $2,666.89 | $2,694.32 |
| Month 5 | $2,722.05 | $27.73 | $2,694.32 | $0.00 |
The five payments total $13,610.33, and interest comes to $410.33. The last payment is two cents lower because it closes out the rounding.
Job materials for houses already under contract: windows financed by a Lenawee County, MI home builder
Job materials bought for work that is already signed carry less guesswork than stock bought for sales that might come. A home builder in Lenawee County, MI under contract for three houses can buy the windows for all three at once from one supplier and finance them as inventory.
Illustration only, invented figures: the windows cost $31,500. At 12.6% a year the builder pays $5,444.62 a month for half a year, or $32,667.72 by the sixth check. Interest of $1,167.72 works out to $389.24 per house, a figure the builder can set against each contract price.
Installing the windows is part of the builder's work on the customers' houses. Work on the builder's own buildings, and real estate of any kind, is outside this site.
By Valeshire Financial ยท Updated
