Lendinero's blog on Growing Your Business
Inventory loans have improved cash flows for many businesses as long as it is part of your collection system. If you understand your collection system, inventory financing will work very well. The way you collect payments should be integrated into your financing strategy for acquiring inventory.
Lenders will not require you to integrate your collection system. This is something you will need to do internally in your company. Some things you need to take into consideration include:
If you obtain inventory financing and it takes you 90 to 120 days to collect money this may not improve your cash flow. If business aging receivables take 20 to 60 days than you may notice a difference in cash flow.
Business collection activity is a historical or past performance and projected performance. Before you take out a loan, evaluate this activity. Lenders may request aging receivables to approve your loan.
If you have more than 50% of your collections over 120 days this means that it’s taking you about 4 months before you see any money after you sell your products or services. If these collections represent a large portion of your revenues than this means that you may only be receiving the majority of your revenues four times in a year. If you reduce the time frame in collection this will increase the amount of cash flow that you receive.
If you have errors and disputes in your invoices or accounts receivables you need to fix this and diminish this. This will only delay your cash flow in the future. If you obtain a loan and you have any projected delays than this will affect cash flow. If you improve errors and disputes and you take out a loan you will increase your cash efficiency rate.
Inventory financing can greatly improve your cash flow if you enforce payment activity. Keep in mind that when you take out a loan you the lender will enforce payment activity from you. You need to do the same with your customers.
If you’d like to learn about inventory financing at Lendinero, click here.
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By Gil Zapata
Miami, FL October 16th 2017
© 2015 Lendinero