January 26, 2022 6 Key Benefits of Inventory Financing

Here are six key ways in which truck manufacturers and dealers can benefit from smart, strategic use of inventory financing.

By Jeff Collins

In the world of equipment, inventory financing is sometimes viewed as a commodity. A more thorough understanding of the ways inventory financing can be beneficial may lead truck manufacturers and dealers to another conclusion.

Inventory financing, at its core, is a form of asset-based lending in which the amount borrowed is determined by the value of your inventory. Typically, it will be a short-term loan or a line of credit; lenders will lend a percent of the inventory’s value. There’s usually no need for collateral since the inventory secures the loan.

Here are six key ways in which truck manufacturers and dealers can benefit from smart, strategic use of inventory financing.

1. To purchase raw materials, parts and equipment. Manufacturers often must move quickly to purchase necessary materials. Supply shortages can rapidly ease; large orders can come in; economies can shift. Inventory financing lets manufacturers utilize the value of inventory to buy what they need.

Inventory financing lets dealers make the purchases they need when they need them. With inventory financing, dealers may be more able to buy in volume and earn volume discounts. The pandemic has reinforced the importance of inventory planning, with many dealers looking to carry more inventory than they would otherwise (when it’s available). Inventory financing can give them the ability to do so.

2. To finance used equipment. Not every inventory finance provider will do this, but the ones who do can be invaluable.

3. To increase sales. Inventory financing programs tailored for individual dealers will provide incentive for those dealers to purchase equipment quickly and easily. And through development of retail programs for dealers, inventory financing can offer a streamlined approach that simplifies life for them.

Manufacturers supporting inventory finance programs help dealers stock inventory, and dealers that have inventory on hand will benefit from increased sales. In many industries, a customer won’t wait if the dealer does not have the inventory in stock when needed; the customer will simply find a dealer that has it. And, as the cost of vehicles – both new and used – and other equipment in every industry continues to climb, the vast majority of customers will need to finance their purchases. The ability to offer financing programs can often mean the difference in getting a sale or not. The ability to offer flexible programs to meet a customer’s needs can seal a deal quickly.

4. To improve cash flow. Before the onset of the COVID-19 pandemic, average inventory was on the line 130 days. A year and a half later, it was 72 days. With manufacturers scrambling to meet the demand, it’s critical to move units out quickly once they are produced. A good inventory financing program can assure manufacturers will be funded the minute they ship.

On the dealer side, emerging from the pandemic, companies are watching and guarding cash flow in a way they have never done before. Especially in a fluctuating economy, it can be smart to use funds from inventory financing for capital expenditures – and use cash for staffing and expenditures needed to grow the business.

5. To build out a distribution network. Whether a manufacturer is looking to build, expand or maintain a distribution network, inventory finance can be a primary instrument. Development of a retail program that works for dealers will get and keep inventory moving smoothly. Manufacturers in early stages of North American market growth can benefit tremendously from sharp use of inventory financing in building out their distribution channels.

6. Improve customer relationships. When a manufacturer can help dealers acquire the equipment they need on terms that work for them, both the manufacturer and dealer will realize stronger customer relationships for both the short and long term. Offering financing options lets dealers know they come first.

What to look for in an inventory finance provider

Inventory financing goes beyond interest rates. In fact, for a company looking at growing its business as efficiently as possible, other factors will far surpass rates in importance.

• A partner rather than a vendor. Partners seek a shared vision and shared success. Because they are looking for a long-term relationship, they will take time to learn about your business, your processes, your model. With a consultative approach, a partner will help figure out and recommend programs that work for you today as well as in the future.
• Respect for the dealer network. A good partner will get to know a manufacturer’s dealer network, and understand that the network is the manufacturer’s most important resource. They will provide exceptional service, be available when needed, and focus on the priorities manufacturers and dealers set.
• Flexible programs. Particularly for the small and mid-sized enterprise, a rock-solid inventory financing partner with an entrepreneurial mindset is a huge asset. Development of tailored programs for dealers will drive more units to them, faster, resulting in a win-win scenario for both. Maybe it’s a buy-back program if an asset doesn’t sell in a given time, a special program for used equipment or other. Instead of a one-size-fits-all approach, a good inventory financing partner will develop a customized approach that facilitates the achievement of sales objectives.   
• Speed in execution. Some inventory finance providers, working amidst regulations and policies, can be slow to respond. Finding an inventory financing partner with flexibility and the ability to quickly and efficiently develop customized programs translates to better overall customer experience for both manufacturers and dealers.
  For dealers, getting quick-turn credit decisions and expedited funding can be challenging. An experienced, customer-centric inventory finance partner can make things happen fast, often even providing same-day funding.
• One-stop shop. To make life easier, look for an inventory financing partner that can handle all your needs: equipment purchase, floorplan financing for dealers, and retail programs that assist dealers.

Inventory financing is a tool that truck manufacturers and dealers can utilize to use assets wisely and drive sales. When looking at it as more than just a box to fit into, it becomes a smart business tool to open the doors to greater growth.

About the Author
Jeff Collins is Vice President, Operations, Inventory Finance at Mitsubishi HC Capital America, a provider of customized financing solutions that meet a variety of needs for the trucking and transportation industries. Visit https://www.mhccna.com/en-us

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