For the avoidance of doubt, they are completely different.
Factoring requires the completed delivery of goods or services, for which an invoice has been issued, awaiting payment. The invoice is sold at a discount to a Factoring company in return for an initial cash advance.
Since Factoring is the sale of an invoice, it is not a loan. It allows a company to grow debt-free.
Inventory Financing is a line of credit secured by physical inventory. It makes the cash tied up in your Inventory available to you. It is a LOAN and therefore repayable – It is a Lender / Borrower arrangement.
It is usually available to businesses with good credit and sales history. By contrast, Factoring focuses on the credit worthiness of the debtors of the business i.e. the customers who are responsible to pay the invoice.
When Is Inventory Financing Available?
1. When you have a warehouse of goods ready to ship, but find yourself short of cash to buy supplies for your next production cycle;
2. When you have to maintain high levels of inventory to conduct ongoing business that keeps too much of your cash tied up.
3. When you have good turnover in your inventory, but are short on cash flow and you have to keep replenishing your stock.
When Is Inventory Financing Not Advisable?
When you have a storeroom full of out of date or hard to sell merchandise. It will add interest charges and will make a bad situation worse.
Potential Problems With Inventory Financing
1. High interest rates or other fees.
2. You may have to pay off the Line of Credit every 12 months – regardless of the state of your Inventory.
3. If sales slow down, you may have to unload your Inventory at a loss, undermining your ability to stay current on your line of credit.
4. The interest on the loan may sap your ability to keep production or shipment on schedule.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
Factoring requires the completed delivery of goods or services, for which an invoice has been issued, awaiting payment. The invoice is sold at a discount to a Factoring company in return for an initial cash advance.
Since Factoring is the sale of an invoice, it is not a loan. It allows a company to grow debt-free.
Inventory Financing is a line of credit secured by physical inventory. It makes the cash tied up in your Inventory available to you. It is a LOAN and therefore repayable – It is a Lender / Borrower arrangement.
It is usually available to businesses with good credit and sales history. By contrast, Factoring focuses on the credit worthiness of the debtors of the business i.e. the customers who are responsible to pay the invoice.
When Is Inventory Financing Available?
1. When you have a warehouse of goods ready to ship, but find yourself short of cash to buy supplies for your next production cycle;
2. When you have to maintain high levels of inventory to conduct ongoing business that keeps too much of your cash tied up.
3. When you have good turnover in your inventory, but are short on cash flow and you have to keep replenishing your stock.
When Is Inventory Financing Not Advisable?
When you have a storeroom full of out of date or hard to sell merchandise. It will add interest charges and will make a bad situation worse.
Potential Problems With Inventory Financing
1. High interest rates or other fees.
2. You may have to pay off the Line of Credit every 12 months – regardless of the state of your Inventory.
3. If sales slow down, you may have to unload your Inventory at a loss, undermining your ability to stay current on your line of credit.
4. The interest on the loan may sap your ability to keep production or shipment on schedule.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
No comments:
Post a Comment