A successful retail business depends on a smooth flow of inventory throughout the distribution channel and having the inventory that customers want. For some businesses, especially those that carry several different brands and have seasonal ebbs and flows, securing the capital needed to maintain the right amount of inventory can help them succeed financially. When pressed for cash flow, it can be difficult to make important investments to grow a business, like investing in system upgrades, carrying a new product line or securing additional warehouse space. For some businesses, uncertain or inconsistent cash flow can even lead to a choice between paying rent or payroll.
Many manufacturers sell through an independent dealer network, including those that sell products such as boats, recreational vehicles, lawn mowers, appliances and motorcycles. Inventory financing can be an effective way for these dealers to carry more products, provide better service to their customers, maintain optimal inventory levels and focus on what matters most to them – managing and growing their business. Inventory financing can also help manufacturers improve liquidity, accelerate funding to reduce their days sales outstanding (DSO) ratio and reduce expenses by transferring collection, underwriting, and collateral management services to an inventory financing specialist. In short, inventory financing is a type of asset-backed lending used to purchase inventory, and the inventory in turn serves as part of the collateral for the line of credit*. For larger products, as the inventory is sold, the proceeds are used to pay down the line of credit. For other smaller products that turn more quickly, the payment terms are predetermined and closely mirror the inventory turn. New inventory is then purchased, repeating the cycle. This type of funding can be an important tool for businesses that experience sharp seasonal fluctuations in sales, as it enables them to buy—and sell—more inventory during their peak season.
*Subject to credit approval, fulfillment of conditions and satisfactory legal documentation
The benefits of working with an inventory financing source aren’t limited to helping maintain optimal inventory levels and so choosing the provider that is right for your type of business is critical. To get the most from your relationship with your inventory financing provider, look beyond the funding component to include these considerations in your selection process:
Industry experience and expertise
An inventory finance company with decades of experience has an understanding of market cycles over time, so it is well equipped to help your business manage economic fluctuations. Professionals who have long tenure within their company as well as their industry have a deep understanding of the business and longstanding relationships within their industry verticals; they also tend to be passionate about your type of business and genuinely invested in your company’s success. Ideally, their experience also brings valuable expertise and insights to help your business make more informed decisions.
With more than 60 years’ total global experience, Wells Fargo Commercial Distribution FinanceTM (CDF) is the inventory financing provider of choice for more than 30,000 dealers and 1,200 manufacturers (OEMs) and distributors globally.
Tools to help manage inventory
The right financing provider should offer solutions and intelligence that are tailored to support your specific type of business. For example, CDF provides customers with the following:
- Customer Online Management System (COMS) helps you efficiently manage your inventory with 24/7 access to account information, billing statements, secure payment options, inventory management reports, analytics, and more. By using COMS, our customers can receive real-time notifications on key account activity and have access to data to help make more informed business decisions.
- Analytics tools offer insights into the performance, aging and health of your portfolio, and allow you to compare your results with those of your peers.
- Economic reports and commentary from the Wells Fargo Economics Group to help you manage risk and capture business opportunities.
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