Of the businesses who purchase different kinds of stock, the one area that really hampers growth is funding the purchase of stock at the outset.
It’s a cash flow killer. Many firms are paying 30-50% deposits, with balances required soon afterwards, whether in the UK or abroad.
As we know only too well, invoices can take a while to get paid, and are typically 30 days at best. With the bigger firms, it can easily be 60-120 days before invoices are settled. I’ve seen a large retail giant require 6 months worth of stock needing to be held upfront, with no guarantee of how many sales will be made.
As a result, what should have been a golden opportunity to grow the business has turned into a fearful nightmare.
Either the capital is not available to pay suppliers to service a large new opportunity or contract, or the business faces a potentially serious cash flow crisis in the interim period waiting for sales and invoices to fall due. It’s no wonder then that growth can be the hardest aspect!
So what’s out there for the importer/exporter/distributor/wholesaler/retailer?
The banks are unfortunately not going to help at the moment, and for the foreseeable future. Virtually all business lending now is conducted on a secured basis, and by ‘secured’, they mean the business owns commercial property.
Ultimately a commercial mortgage is the cheapest form of long-term finance, and 80% loan to value mortgages are still available for up to 20 years, at around 3.2% over base. If you own your own warehouse, this might be a good place to start, but it will be slow. Commercial mortgages are quite often taking between 3 and 6 months.
There is another solution to this problem, for most suppliers; finance the payment to your suppliers, secured against your stock. This is at an even earlier stage that either banking Letters of Credit, or when Invoice Finance kicks in.
Whilst the banks won’t do this (unless your turnover is very high), a couple of smaller finance houses exist who can fund up to 100% of the landed costs of stock imported (including with one firm, all freight, VAT and duty costs).
Suppliers are paid by the finance house, who then import the stock themselves. They will then release the stock upon receipt of sales funds, either from direct sales, an invoice being generated by a buyer, or by linking in with an invoice finance firm.
Whilst the finance house charges interest on the transactions, this type of finance allows businesses to leverage their cashflow, meaning precious capital is not tied up in the first stage of the cycle. As a result, big contracts can be serviced, opportunities can be grabbed, and precious cash can be used for other priorities, which would otherwise have had to wait, or never happened at all.
To work out what you can get, why not download our Free Stock Finance Calculator by clicking on this link
The return on investment can be substantial, and well worth considering if you wish to grow your business at a quicker rate than is currently happening.
Speaking to a non-fee charging commercial finance specialist can save a lot of time, money, and stop your business missing out on vital growth opportunities.
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About Chris Davidson
Chris Davidson is Managing Director of Discover & Invest Ltd.
He believes passionately in providing businesses with market-leading financial insights that have a positive impact on the bottom line. As a result, Chris helps get the best rates and terms available at any one time.