Call us: 03330 113622

Blog home
Categories
Popular Posts
Recent Posts
Archive

• 05 Jul

  How To Use Receivables Financing To Finance The Purchase Of Large Amounts Of Stock Or Raw Materials

  

  Innovative Ways To Finance Purchasing A Large Amount Of Stock Or Raw Materials

  An Introduction About How To Use Stock Financing

  For businesses that rely on purchasing large quantities of stock, finding the necessary funds to fulfil these orders can often be a challenge.

  Cash flow constraints can hinder growth and limit the ability to take advantage of lucrative opportunities, such as bulk purchasing discounts. However, with the advent of innovative financing solutions, UK-based companies can now explore alternative methods to finance their stock purchases. This article explains how to do that.

  REQUEST A QUOTE

  In this article, we will delve into the concept of receivables finance and how it can help generate the necessary cash flow for purchasing substantial amounts of stock. We will also touch upon stock financing products that can further raise finance against the existing stock, providing businesses with a comprehensive toolkit to meet their inventory requirements.

  What Is Receivables Finance?

  Receivables finance, also known as invoice finance, factoring or invoice discounting, is a flexible funding solution that allows businesses to convert their outstanding customer invoices into immediate cash. It is a form of asset-based financing where a company can borrow against its accounts receivable, using them as collateral. This provides an efficient way to unlock the working capital tied up in unpaid invoices and use it to fund the purchase of stock (or for other purposes).

  How Does Receivables Financing Work?

  In receivables finance, a company partners with a financing provider, such as a bank or a specialised finance company. The process typically involves three parties: the business (seller), the debtor (customer), and the financing provider. The financing provider advances a percentage of the invoice value, usually around 80-90%, to the business upon invoice issuance. The remaining balance, minus a financing fee, is paid once the debtor settles the invoice. This allows the business to access immediate cash flow to purchase stock (or anything else) while mitigating the impact of delayed payment terms.

  Benefits Of Receivables Finance For Purchasing Stock

  Receivables finance offers several advantages for UK-based businesses in need of stock financing:

  1. Improved cash flow: By accelerating the payment of invoices, businesses can access cash flow to finance large stock purchases, ensuring timely order fulfilment and avoiding cash flow gaps.
  2. Flexibility: Receivables finance can be tailored to a company's specific needs. The amount of funding available is directly linked to the value of outstanding invoices, providing a scalable solution that grows with the business.
  3. Reduced credit risk: Businesses can benefit from credit risk assessment and management services by partnering with a financing provider, minimising the risk of non-payment and bad debt.
  4. Cost-effective: Receivables finance typically offers competitive rates compared to traditional forms of finance, making it an attractive option for businesses seeking affordable financing solutions.

  Stock Financing Products For Additional Finance Raised Against Existing Stock & Work In Progress

  In addition to receivables finance, UK businesses can also explore stock financing products that allow them to raise further finance against their existing stock or work in progress. These products enable businesses to leverage their inventory to access working capital, freeing up cash for additional stock purchases or other operational needs. Stock financing solutions may include inventory-based loans: These loans use the existing stock as collateral, enabling businesses to borrow against a percentage of the inventory's value.

  Eligibility And Considerations For Receivables Finance And Stock Financing

  To qualify for receivables finance and stock financing, UK-based businesses should consider the following factors:

  1. Strong customer base: Lenders typically prefer businesses with a diverse and stable customer base, as it indicates a lower credit risk.
  2. Reliable invoicing system: A robust and well-documented invoicing process is crucial to ensure a smooth receivables finance operation, although this can be outsourced to the funder in some cases. Similarly, an efficient stock management system is essential for stock financing products.
  3. Professional advice: Seeking guidance from finance experts, brokers or specialist advisors can help businesses navigate the complexities of receivables finance and stock financing, ensuring the best-fit solution for their specific needs.

  How To Choose The Right Financing Provider

  When considering receivables finance or stock financing, it is essential to partner with a reputable financing provider that understands the unique requirements of your business. Factors to consider when selecting a provider include:

  1. Expertise in the industry: Look for providers with experience in financing stock-intensive businesses, such as those that offer manufacturing factoring and invoice finance, to ensure they have a deep understanding of your sector's dynamics.
  2. Competitive rates and terms: Compare financing rates, fees, and repayment terms to secure the most favourable terms for your business.
  3. Customer support and service: Choose a financing provider that offers excellent customer service, responsive support, and a streamlined application and funding process.
  4. Track record and reputation: Research the provider's track record, read client testimonials, and assess their reputation in the market to ensure reliability and trustworthiness.

  Conclusion About Stock Purchasing Finance

  Financing the purchase of large amounts of stock is a common challenge for many UK-based businesses, particularly those in the manufacturing sector. Receivables finance provides an innovative solution by unlocking the cash flow tied up in unpaid invoices, enabling businesses to access immediate funding for stock purchases. Additionally, stock financing products offer further options to raise finance against the existing stock, creating a comprehensive toolkit for companies to manage their inventory requirements effectively. By exploring these innovative financing options and partnering with the right financing provider, UK businesses can seize growth opportunities, enhance their cash flow, and drive success in the competitive marketplace.

  By Glenn Blackman