Inventory financing pays for goods bought ahead of the sale, and the goods can secure it. The invented cases cover a distributor paid on a customer order, a furniture store’s floor stock and slow stock that adds interest. Fixtures, coolers and payroll belong to other products.
At a glance
- Fits
Goods bought for resale before they sell
- Wholesale trade, Brown County, TX
29 employer establishments (CBP 2023)
- Retail trade, ZIP 76801
107 employer establishments (ZBP 2023)
A purchase order financing example from a Brownwood, TX distributor holding a customer order
Purchase order financing pays the supplier for goods a business has already sold on a customer’s purchase order, then gets paid back when that customer pays. On this site the same need goes in as an inventory financing request: the order is stock bought before it is sold, and a funding partner may look at the purchase order, the supplier invoice and the customer’s payment terms together.
A wholesaler is the clearest fit, since it buys from one company and sells to another. Brown County, TX had 29 wholesale trade employer establishments in 2023, and 34.5% of them had fewer than five employees (County Business Patterns, NAICS 42).
Illustration only, invented figures: in this invented case a distributor holds a $38,400 customer order and owes its supplier $26,900 for the goods. A partner pays the supplier at a 13.65% annual rate, and the customer pays 75 days later, 30 days after delivery.
| Line | Invented figure |
|---|---|
| Customer purchase order | $38,400 |
| Supplier invoice the partner pays | $26,900 |
| Days until the customer pays | 75 |
| Interest at a 13.65% annual rate | $754.49 |
| Left after the supplier and the interest | $10,745.51 |
The invented order leaves $10,745.51 before freight, payroll and any fees in the offer, which is the number worth checking before the request goes in. A machine for the same kind of order is a separate request, as the boring mill article shows.
Inventory financing companies a Brownwood, TX retailer can compare before a large stock buy
A store that buys a large stock order by the pallet has several kinds of inventory financing companies to compare. Each one prices and polices the stock a little differently:
- Banks, which may set up a line tied to a share of the stock and the receivables
- Non-bank finance companies, which may lend against the stock alone
- The wholesaler or maker itself, through trade credit with its own due dates
- Funding partners reached through a single request on this site
The Census counted 107 retail trade employers with addresses in ZIP 76801 in 2023; 38.3% of those stores had fewer than five people on the payroll (ZIP Code Business Patterns). A small store and a large one face the same questions in an offer:
- The percentage of the stock’s worth a partner may put up
- How the stock is counted and how often it has to be reported
- How far the lien reaches: the stock alone, or everything the business owns
- What happens to the advance on stock that ages on the shelf
An inventory financing example: a Brownwood, TX furniture store’s floor stock
A furniture store buys sofas, tables and bedroom sets months before the last piece sells. Brown County, TX had 6 furniture and home furnishings stores with employees in 2023 (County Business Patterns, NAICS 442), so the case below imagines a store of that kind, with invented numbers.
Illustration only, invented figures: the invented store finances $31,500 of floor stock over 9 months at a 12.35% annual rate. Each invented payment is $3,682.56, and the nine of them come to $33,143.04, so the invented stock carries $1,643.04 of interest.
The invented payment of $3,682.56 falls due every month whether the dining sets have sold or not. A store can set it against the gross margin it expects from the same stock, month by month, before choosing the term.
What is inventory financing? A Brownwood, TX gas station stocking its store
Inventory financing is money borrowed to buy goods a business will resell, with those goods able to serve as security for the debt. At a gas station that means the store side: packaged snacks, bottled drinks, ice, motor oil and car-care goods.
Brown County, TX counted 20 gasoline stations with employees in 2023 (County Business Patterns, NAICS 4471), and 18 of them were gasoline stations with convenience stores (NAICS 447110).
- Store stock bought for resale: an inventory financing request
- Reach-in coolers, roller grills and a POS terminal: equipment financing
- A weekly order that comes back around: a business line of credit
A store that keeps a running count of what sells each week has the record a partner may ask for before it sets an advance against the shelves.
Stock that sits: where inventory financing stops fitting a Brownwood, TX store
Inventory financing works when goods sell before the payments run ahead of them. When stock sits, the payments keep coming and the interest keeps running.
Illustration only, invented figures: in this invented case $12,600 of slow stock stays on the shelf 45 days longer than planned, at a 14.1% annual rate. Those extra invented days add $219.03 of simple daily interest.
Other needs fit other products. Payroll fits a working capital loan, freestanding gondolas and racks fit equipment financing, and wall-attached fixtures are property work outside this site. Every option is set side by side on the business loans page. A metal shop's plating, freight and payroll draws are traced in the commercial line of credit article.
ZIP 76801, home to most of Brownwood, TX, had 11 building material and garden equipment and supplies dealers with employees in 2023 (ZIP Code Business Patterns, NAICS 444); for a dealer like that, the slow-turning lines are the ones to keep out of an inventory request.
By Deltagrove Loans · Updated
