Inventory financing covers goods for resale or for use in service. This page works through a purchase order case, a salon restock, the points to compare between offers, a bulk order with a supplier discount, and where inventory ends and equipment begins. Every figure in the examples is invented.
At a glance
- What it buys
Stock for resale and supplies used up in service
- How it ends
Paid down as the goods sell or are used
- ZIP 73003 retail
74 retail trade establishments with a ZIP 73003 address (ZBP 2023)
Purchase order financing example: an Edmond, OK gift retailer filling a law office's client order
Purchase order financing starts from a customer's confirmed order, not from stock on a shelf. In this invented case an Edmond, OK gift retailer receives a written order from a law office for 240 client gift sets at $115 each, $27,600 in all. The retailer's supplier wants $16,320 up front (240 sets at $68), and the store does not want to drain its operating account to pay it.
- The retailer shares the law office's purchase order and the supplier's quote
- A funding source that offers this structure may pay the supplier directly
- The supplier ships, the retailer assembles and delivers the sets
- The law office pays its invoice, and the funding source is paid its advance and fee from that payment
- What remains goes to the retailer
Invented terms: a fee of 3.5% of the supplier payment for each 30 days the advance is out. Payment from the law office lands on day 41, inside the second 30-day period, which puts the fee at $1,142.40. The order's gross margin of $11,280.00 drops to $10,137.60 after the fee (our arithmetic). Whether any partner offers purchase order terms, and at what cost, is up to that partner.
How does inventory financing work when an Edmond, OK salon restocks its retail shelf?
A salon that sells shampoo, color care and styling product at the front desk buys that stock in case lots from a distributor. Inventory financing pays the distributor's invoice; the salon then pays the financing down from retail sales over a short term. The goods bought are the reason for the money, and a partner may also take them as collateral.
Illustration only, invented figures: a $9,850 retail order over 5 months at 13.4% a year comes to $2,036.48 a month. Across the 5 installments the salon hands over $10,182.40, and $332.40 of that is interest (our arithmetic). If the product sells more slowly than the term, the payments still come due, so the term should match the weeks the shelf really takes to turn over.
Beauty salons with paid staff numbered 209 in Oklahoma County, OK in 2023, 160 of them with fewer than five employees (County Business Patterns, NAICS 812112).
Inventory financing companies: points an Oklahoma County, OK dental office can compare across offers
A dental office that orders impression material, composites, gloves and disposables in bulk may see more than one offer after a request goes out. The offers can differ in ways that do not show up in the monthly figure alone.
| Point | What to look for | Question to ask the funding partner |
|---|---|---|
| Share funded | Whether the offer covers the whole supply order or part of it | How much of the invoice does the offer pay? |
| Cost | An annual rate, a flat fee, or both | Added up over every payment, what does the offer cost in dollars? |
| Term | Weeks or months, and how often payments fall | Does the term fit the pace at which the supplies are used? |
| Collateral | The goods alone, or a broader lien on business assets | What does the security filing cover? |
| Early payoff | Whether paying early lowers the total | Is there a charge for paying the balance ahead of schedule? |
Offices of dentists with paid staff numbered 449 in Oklahoma County, OK in 2023 (County Business Patterns, NAICS 6212). ZIP Code Business Patterns listed 26 dental office establishments with a ZIP 73003 address in 2023.
Inventory financing example: a quick-service restaurant in Edmond, OK taking a supplier discount on a bulk order
A quick-service restaurant's distributor offers 4% off a full-pallet order of paper goods, cups and dry goods listed at $14,200. The discount is worth $568.00, but only if the order is paid now. In this invented example the restaurant finances the discounted price of $13,632.00, not the list price.
Spread across 4 monthly installments of $3,508.69 at an invented rate of 14.1% a year, the restaurant sends $14,034.76 in all, $402.76 of it interest. That is $165.24 less than the discount the restaurant kept (our arithmetic). The case only works if the restaurant has room to store the pallet and goes through it within the term; otherwise the interest runs on stock still sitting in the back.
What is inventory financing? Stock that sells or gets used up, not the shelving it sits on
Inventory financing pays for goods that leave the business: product sold to customers, or supplies consumed while serving them. It does not pay for the fixtures, coolers or machines the business keeps; those belong on the equipment financing page. Payroll and repair bills fit a working capital loan better, and repeat supply orders that come and go may fit a line of credit that can be drawn and paid down again.
Employer establishments in retail trade with a ZIP 73003 address numbered 74 in 2023, and 41.9% of them had fewer than five employees (ZIP Code Business Patterns, NAICS 44-45).
All six funding types are side by side on the business loans overview.
By Skywater Business Funding ยท Updated
