Inventory finance
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A finance provider funds part of the value of goods you hold in stock, keeps a legal claim on them, and is repaid when you sell them.
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01 · In plain words
A finance provider pays you part of your stock's value now, and you repay it when the goods sell
is money for goods you hold before you sell them. The Global Supply Chain Finance Forum, or GSCFF, describes it as finance for a buyer or a seller in a supply chain while it holds or stores goods (GSCFF). Other names for it are warehouse finance and floor plan finance (GSCFF).
The finance provider takes a legal claim on the goods. It holds title, meaning legal ownership, or security, meaning a legal claim, over them. It gives the title back only when you have repaid (GSCFF).
The finance provider pays you only part of the value of the goods. The part it keeps back is a . It is a cushion in case the goods lose value (GSCFF).
Who is involved
- You, the client: the buyer or seller who owns and holds the goods.
- The finance provider: a bank or a non-bank lender (GSCFF).
- Sometimes a warehouse run by another company, where the goods are stored (GSCFF). See Warehouse finance (warehouse receipts).
- Inspectors and insurers, who check and cover the goods for the finance provider (GSCFF).
02 · How it works
Eight steps take the goods from storage to sale and the title back to you
Figure 1 · Interactive
Inventory finance, step by step
Read down the steps. The last step is where the finance provider gives the title back.
Source: Global Supply Chain Finance Forum, Standard Definitions, Loan or Advance against Inventory, 2016.
03 · What it means for you
The goods holder gets cash before the sale, and must keep the goods insured and checked, and sell them on time
Figure 2 · Interactive
What inventory finance means for you
Choose your side of the trade. In both cases you are the one holding the goods.
04 · Worked example
On $1 million of stock, an illustrative 70% advance gives you $700,000 now
This example uses round, made-up numbers. The goods are worth $1,000,000. The finance provider advances 70% of that. Interest is 6.00% a year, worked out on a 360-day year, for 90 days. Real advance shares and interest rates vary by lender, goods and deal.
Figure 3 · Illustrative
Inventory finance on $1,000,000 of goods held for 90 days
Illustrative inputs. The cash left to you is highlighted.
Made-up rates, worked out by our checking script. The 360-day year follows the US money market basis used by the Federal Reserve. Your lender's terms will differ.
05 · When to use it
Inventory finance suits goods that sell readily and can be checked and insured
Good fit when
- Your goods are marketable commodities, or finished goods or work in progress where a buyer may already be found (GSCFF).
- You need money for the time the goods are held or stored before sale.
- The goods can be inspected and insured, so the finance provider can keep watch on them.
Another tool may suit better when
- Your goods sit in a warehouse that issues a . Look at warehouse finance.
- You fund several lines of stock at once and want one limit set against their market value. Look at an asset-based revolving facility.
- You have already sold and shipped the goods and are waiting for the buyer to pay. Look at factoring.
- The goods are hard to sell on time, or can lose quality or be damaged beyond what checks and insurance cover. The GSCFF names both as risks (GSCFF).
06 · Rules and a real case
Your own agreements and local law set the terms, and a US refiner's filing shows one in use
The financing agreement and the security agreement set the terms (GSCFF). The GSCFF Standard Definitions, 2016, give the common market meaning (GSCFF). The legal claim on the goods follows the local law on security over goods. In the United States that is the Uniform Commercial Code, which was amended in 2022 (Uniform Law Commission). When your sale contract uses , they set out the tasks, costs and risks of delivery between seller and buyer (ICC).
A real case. PBF Holding Company LLC, a US oil refiner, described an deal in its Form 10-K for 2021, filed on March 2, 2022. Another company, J. Aron, buys and holds title to some of PBF's crude oil and oil products. It sells them back to PBF as they are drawn out of PBF's storage tanks. When the agreement ends, PBF must buy back the inventory still outstanding (US SEC filing).
Summary
Inventory finance turns stock you hold into cash, with the goods as the finance provider's cushion
You get part of the value of your goods while you hold them. The finance provider keeps a legal claim on the goods and gives it back when the sale money repays it. The trade-off is that you get only part of the value, and you must keep the goods insured, checked and selling on time.
Related guides: Inventory finance; Working capital and trade finance; Seasonal trade and working capital. Related cards: Warehouse finance (warehouse receipts); Asset-based revolving facility; Structured commodity finance. Every term is in the Trade Finance Glossary.
Sources
- Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance: Loan or Advance against Inventory, 2016. Supports: definition, other names, parties, the flow, title, margin of protection, inspections and insurance, tenor, annual review, risks, when it fits
- Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance, 2016. Supports: the common market definitions
- Federal Deposit Insurance Corporation, Core Analysis: Floor Plan Loans, Examination Modules, October 2022. Supports: floor plan inspections and curtailment
- US SEC EDGAR, PBF Holding Company LLC, Form 10-K for fiscal year 2021, filed March 2, 2022. Supports: the real case
- International Chamber of Commerce, Incoterms 2020, in force January 1, 2020. Supports: tasks, costs and risks of delivery
- Uniform Law Commission and American Law Institute, Uniform Commercial Code, 2022 Amendments, 2022. Supports: US law on security over goods
- Board of Governors of the Federal Reserve System, Selected Interest Rates (Daily), H.15, September 29, 2026. Supports: the 360-day year in the worked example
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