Revolving Stock Finance – Growth Finance
Revolving Stock Finance
Stock Finance is also sometimes called Inventory Finance or simply Trade Finance.
The principle is that a funder provides a credit line to it’s client to purchase goods, (stock/inventory) which are to be resold at an unspecified future date. The advance made by the funder is repaid on an agreed future date or even on a regular monthly instalment basis. The concept has been around for centuries and until more recently tended only to be available for well-established companies with profitable track records and high balance sheet net worth. More recently as well as these large funding lines new players in the market have been willing to provide this type of arrangement for smaller businesses and at much lower levels of advance – down to say £50k as compared to traditional providers working in the sphere of funding lines of say £250k – £10m.
Some funders will sometimes use the stock alone as security whilst others may rely on the credit rating of the client or even a mix of the two. For smaller funding lines director’s guarantees or a Debenture may also be sought. It’s very much each application to be considered individually.
Usually, the funder will seek to have “title” to the stock until it is sold – they are various proven ways this can be achieved.
In most, but not all cases, the cash advance is not made to the client but is a payment made to a supplier to settle an invoice. The supplier is paid by bank transfer on behalf of the client and usually the supplier is unaware of the arrangement.
It is not uncommon for a funder to wish to have regular updates on the inventory (stock) levels, maybe monthly or quarterly and there are different methods used to achieve this.
The stock may be stored at the client’s own premises or a third-party warehouse and is not always kept in the same country as the client. All of these should be explored when setting up a Stock Finance account.
In the majority of situations, a Stock Finance facility will be complimentary to the client’s existing Banking or other funding lines.
The stock being financed will be repaid based on the client’s “usual” business cycle although special arrangements can sometimes be agreed to finance seasonal sales or where extended credit terms are being offered to customers.
A funder will be interested in the quality of the goods, their origin and “shelf life” as part of the initial New Business process
A potential client will be expected to have good financial reporting systems and not be “distressed”, again all aspects of the client’s business will be taken into account in order to try to structure an arrangement that works for both Client & Funder.
Some funders have the latest technology with on-line client portals for managing transactions whilst others will have more personalised arrangements with daily/weekly phone and email interaction with clients.
Stock Finance facilities work well for businesses that have continuous sales but do not always (or indeed ever) have confirmed forward orders. The end sale of the goods does not have to be Business to Business as retailers often like to have an independent Stock Finance line of Credit. It’s a highly flexible arrangement usually for finished goods, although Stock Finance can also work well for components or similar for assembly by the client. Larger lines can be used for commodities, especially for cross border trade. Whether stock is for sale in the UK or for Export this type of arrangement can provide that extra buying power either on a regular basis or simply from time to time.