Payment in 60 days
Payment in 90 days
Pledge of inventory collateral.
Advance of inventory loan.
Receive a loan against inventory
A large stock level of inventory can easily tie up significant amounts of working capital. The Buyer may take delivery on average in, say 90 days. Yet, the Supplier needs to be paid on average in 60 days. Carrying inventory for the 30 days costs money.
Inventory Finance comes in many forms:
■ Revolving Inventory Loan:
Hommocks extends a working capital credit line to the Borrower secured by a security interest in all existing and future inventory. The advances are made based upon a specified percentage (eg 80%) of the value of the Borrower's eligible inventory.
■ Prepayment Finance:
Hommocks advances funds to the purchaser (ie Borrower) of future supplies enabling the purchaser to lock in a long term supply contract with the Supplier. Hommocks receives a security interest in the supply contract.
■ Goods in Transit Finance (Pre-shipment Finance):
Hommocks advances funds to the Seller when finished goods are being delivered and are on its way to the Buyer on a vessel, rail, truck, pipeline. The title has not passed to the Buyer.
■ Purchase Order Finance
Hommocks advances funds to the Seller who has received a purchase order from the Buyer. Hommocks assumes full performance risk of the Seller including manufacture, delivery and the Buyer's acceptance of the Goods.
■ Warehouse Receipt Financing:
Inventories are placed in a bonded warehouse as security for loans of up to 80 percent of their value. Hommocks controls any release of goods from the warehouse. As inventory is released from the warehouse, the loan is paid down by the amount released.
The advance rates on inventory typically range between 20% and 80%.
The advance rate is calculated by using the anticipated liquidation value, and not the market value.
Finished goods (vs work-in-process, raw material) receive the highest advance rates because they are easiest to sell.
The advance rate is lowered if the Buyer’s purchase price is undetermined.
Purchase contract with a creditworthy and reliable Buyer, preferably with a strong history of good payment track record.
Liquid secondary market for the inventory.Liq
Weekly collateral report including value, aging, and costs.
Planned inventory purchasing with the Supplier
Inventory control and inventory maintenance systems
Regular inspections of the financed inventory
Quick turnover of inventory with a low aging record.
Benefits for the Borrower:
Increase credit availability and raise working capital based on security in financed inventory
Offer extended payment terms to strategic Suppliers
Accept larger orders from Buyers that would otherwise have been passed up
Increase purchasing power to take advantage of volume discounts offered by Suppliers.
Facilitate expanded sales and increased profits
Meet seasonal demands with increased inventory.