How Inventory Financing Can Help with the Holiday Season

Jul 10, 2020 | eCommerce, Funding

Running a product business often feels like an exercise in living in fast-forward. You plan for needs before they arise. You develop the advancement before it’s requested. You research the trends before they’re established.

And you know to prepare for increased holiday demands long before the first wishlist gets scribbled.

Detailed projection and preparation for Q4 holiday inventory prevents brands from missing a period that can account for an estimated 30% of annual sales, according to the National Retail Federation, and the 10 busiest shopping days of the year based on Sensormatic data.

For many companies, holiday sales demand outpaces the rest of the year, meaning the inventory orders need to be larger. However, placing such a large manufacturing order so many months before its sales revenue lands poses a major issue for small and medium businesses.

Namely, increasing your inventory order means it’s a larger check you write, disrupting the normal cash flow for many businesses. That liquidity issue can diminish what’s immediately available to cover overhead, development and marketing.

Product businesses planning Q4 inventory need to ask these questions to adequately prepare:

How much inventory do you need available? How quickly can it be produced, shipped and land? Are your suppliers ready to handle the orders? How much should be budgeted to accomplish that?

As you answer these questions, many businesses first review finances to establish what may be possible.

Many companies will turn to financing their inventory order. Just as each business is unique, so are the financing options. There are a number of options to consider, from traditional loans, lines of credit, business credit cards to inventory financing. While each option can have a place within a business’s planning, inventory financing can be a lower-cost, lower-risk financing option to secure appropriate inventory for a smashing fourth quarter. With inventory financing, you receive funding to cover the inventory purchase and later make payments as each unit sells, allowing you to order the inventory needed to fully stocked shelves early enough to ensure Q4 delivery without pinching cash flow in the months before it lands and sells.

Inventory financing can provide additional flexibilities:

  1. Maintain sufficient inventory – If a hot product takes off but payments haven’t fully landed, use inventory financing to secure another product run while sales momentum is high or in preparation for prolonged demand that outpaces current inventory. This allows you to reorder your top-selling items to ensure uninterrupted sales.
  2. Cut manufacturing costs – Often inventory funding allows you to make a larger inventory purchase than cash on hand alone would allow. Ordering in larger quantities often cuts your costs and can improve your margin without sacrificing quality.
  3. Avoid panicked cost-cutting – Traditional financers often require immediate funding repayment. If you used that funding on inventory whose revenue won’t land in your account for months, immediate repayments can overly tighten cash flow. Inventory funding allows you to prevent harmfully cutting costs across other operational areas to place your order. Inventory funding provides you with the up-front financing needed to purchase products while operating your business as usual.
  4. Overcome seasonality hurdles – There are ebbs and flows to the sales calendar. Many product businesses may experience strong variance across different parts of the year, and if your available funding for your busiest year needs to be available during a slower sales period of the year, you jeopardize sales and success during your most important months.

When your brand must pay suppliers in a shorter period than it takes to sell inventory to customers, inventory funding can be a wise solution. Adding a funding partner gives you the flexibility to maintain inventory, purchase products in bulk, meet seasonal demand, and even expand product lines without exhausting immediate cash flow. As you approach holiday inventory planning, consider the way inventory funding can help you reach new sales goals and become a tool that liberates your cash flow from seasonal pinches in order to reinvest across areas needed to rapidly scale your business.
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This has been a guest post from our partner, Kickfurther. Kickfurther helps businesses grow faster by raising working capital for their inventory. Companies working through any combination of direct-to-consumer, online, wholesale, or retail channels use Kickfurther to fund $20,000-$1,000,000 in inventory they’ll repay on a custom timeline of 1-10 months based on their sales cycles.