Inventory finance funds goods in storage, and the finance provider holds title until it is repaid
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Ossiano Guides · Paying on terms
A finance provider advances part of the value of goods held for sale, keeps title or security over them with inspections and insurance, and hands title back when sale proceeds repay the advance.
Terms like this have a quick explainer. Tap or hover on them.
01 · Scope
Inventory finance pays for goods while they wait between purchase and sale
A business often has to buy goods long before it sells them. pays for that waiting time. The Global Supply Chain Finance Forum (GSCFF) defines it as financing to a buyer or seller in a supply chain for holding or warehousing goods, on its Loan or Advance against Inventory page. The GSCFF lists four other names for it: Inventory Finance, Warehouse Finance, Financing against Warehouse Receipts and Floor Plan Finance.
It sits in the Loans group of the GSCFF techniques index, one of the forms of . The same group holds and pre-shipment finance.
Not every product qualifies. The GSCFF says the financing is typically confined to qualifying marketable commodities. It can also cover finished goods or work in progress, where a potential buyer may already be identified. The , the time until repayment, is short term.
Goods can sit for a long time, and that time ties up . Plexus Corp reported 116 days in inventory at July 4, 2026, in its fiscal third quarter 2026 earnings release. That is one company's figure, shown for context only. Inventory days are one part of the , covered in our guide to the cash conversion cycle.
02 · Control
The finance provider holds title or security over the goods until it is repaid
Control of the goods is the finance provider's main protection. The client and the finance provider sign a financing agreement and a security agreement that covers title to the goods, the GSCFF explains. Title means legal ownership.
The finance provider obtains title over the goods. It releases title only when the loan is repaid. There are two main parties: the client and the finance provider. A third party warehouse may also be involved.
Security can pass through paper. The GSCFF says title can be held through negotiable or warrants, or through an assignment of rights. A warehouse receipt is a : whoever holds it can claim the goods. Our card on warehouse finance covers that structure in detail.
Figure 1 · Interactive
Follow a parcel of goods through an inventory finance facility
Tap a stage to see each step from agreement to release of title.
Steps drawn from the Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance (2016), Loan or Advance against Inventory.
03 · Advance and margin
The finance provider advances only part of the goods' value and keeps the rest as a cushion
The finance provider does not lend the full value of the goods. It is common to advance only a percentage of the inventory value, the GSCFF says. The part left over is the . It absorbs a fall in the price of the goods.
Where several lines of goods are funded, the GSCFF describes a variation. It sets a maximum level of finance against a calculated market value of the goods. Our card on the asset-based revolving facility covers this structure.
US bank examiners show what the percentage can look like. A sample certificate in the National Credit Union Administration examiner's guide sets an inventory advance rate "not to exceed 50%". That is an examiner template, not a market norm.
Here is a simple worked example. All inputs are for illustration. Goods are worth $1,000,000 and the finance provider advances 70 percent. The advance is $700,000.00 and the margin of protection is $300,000.00. The goods could lose 30.00 percent of their value before the margin is used up.
Figure 2 · Try it
How much a finance provider advances against your inventory
Move the slider to set the inventory value, then tap the pills for advance rate, rate and days held.
Advance rate
Annual rate
Days held
Advance paid now
-
Margin of protection
-
Interest to repay
-
Value fall that uses up the margin: -
How it works: the advance equals the inventory value times the advance rate; the margin equals the value minus the advance; the interest equals the advance times the annual rate times the days held, divided by 360; the value fall that uses up the margin equals the margin divided by the value.
Our Research Desk used simple interest on a 360-day year: advance x annual rate x days / 360. Advance rates and interest rates shown are for illustration and are not Ossiano pricing.
This calculator explains the concept only. Advance rates vary with the goods, their marketability, the storage and control arrangements and the finance provider.
The 360-day year is the standard US money market day count, per the Alternative Reference Rates Committee and the Federal Reserve's H.15 release.
04 · Monitoring
Inspections, insurance and audits keep the goods and the advance in line
The finance provider checks that the goods are still there and still worth what it thinks. The GSCFF names inspections and property and casualty insurance as the main protections. It also calls for robust monitoring, reporting and audit of transactions, systems and controls.
Bank examiners set the pace for some structures. For floor plan loans, the finance a dealer uses to hold stock for sale, the FDIC's examination procedures call for inspections generally monthly, or more often based on inventory turnover. The same procedures list a periodic program for unsold units, a set paydown on stock that has not sold.
A Texas Department of Banking worksheet for asset-based lending lists a third party inventory and accounts audit. The GSCFF also names one risk to watch: the client may find it hard to sell the goods in good time. Regular checks keep that risk in view.
Figure 3 · Interactive
Four ways inventory finance is structured
Tap a structure to see how the finance provider controls the goods.
05 · Documents in court
Courts have tested whether warehouse receipts truly stand for the goods
A receipt is only as good as the goods behind it. Two English court cases show why the warehouse matters.
In Mercuria Energy Trading v Citibank NA [2015] EWHC 1481 (Comm), repo financing covered aluminum and copper held in warehouses at Qingdao and Penglai. The deals were worth about USD 271 to 272 million. The court held that handing over indorsed warehouse receipts was not delivery without by the warehouse operator (paragraph 77). Attornment means the warehouse confirms it now holds the goods for the new party.
In ED&F Man Capital Markets v Come Harvest Holdings [2022] EWHC 229 (Comm), repo deals were secured by 92 purported warehouse receipts for nickel. The court found the receipts were forgeries. Our guide to fraud controls in trade finance covers the checks that guard against this.
06 · Intermediation
Some refiners fund crude and fuel stocks by selling them to an intermediary and buying them back
Large energy companies use a related structure. Here the finance provider buys the goods outright. PBF Holding's Form 10-K for 2021 describes its inventory intermediation agreements. J. Aron purchases and holds title to certain crude oil, intermediate and finished product inventory.
The products are sold back to PBF as they are discharged from PBF's storage tanks. When the agreements expire, PBF repurchases the inventory still outstanding. Our guide to structured commodity finance covers related commodity structures.
For the accounting reference, IAS 2 Inventories measures inventories at the lower of cost and . This is a pointer to the official standard only. It does not assess how any repurchase structure is reported.
07 · Ossiano view
In inventory finance, control of the goods carries the credit
OBSERVATION 01
Title is the anchor of the structure
The finance provider holds title and releases it only on repayment, per the GSCFF. So the quality of title and storage decides the quality of the finance.
OBSERVATION 02
Margin and inspection do the daily work
Advances cover a percentage of value to leave a margin, and US examiners expect floor plan checks generally monthly, per the FDIC. Both keep the goods in line with the advance.
Summary
Inventory finance turns goods in storage into cash, with title held until the goods are sold
A finance provider advances part of the value of goods held for sale. It holds title or security over them until it is repaid. The unfunded part is the margin of protection. Inspections, insurance and audits keep the goods and the advance in line. When the goods sell, the proceeds repay the advance and title goes back to the client.
The financing is short term, usually for marketable commodities or finished goods, and runs under a facility reviewed once a year. Warehouse receipts, a maximum finance level against market value, floor plans and title-transfer intermediation are four common ways to set it up.
Related guides: Distributor finance; Title and ownership in commodity trade; Structured commodity finance; Financing agricultural commodity trade; Fraud controls in trade finance; Seasonal trade and working capital; The cash conversion cycle.
Instrument cards: Inventory finance; Warehouse finance (warehouse receipts); Asset-based revolving facility; Distributor finance; Structured commodity finance; Tolling. Every term on this page is defined in the Trade Finance Glossary.
For questions on how inventory finance applies to existing or planned trade flows, contact the Ossiano Research Desk.
Sources
- Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance: Loan or Advance against Inventory, 2016. Supports: definition and synonyms; scope (qualifying marketable commodities, finished goods or work in progress); short-term tenor and annual facility review; parties; financing and security agreements; title held until repayment; security through warehouse receipts, warrants or an assignment of rights; warehouse receipts as evidence of storage; advance of a percentage of value; maximum finance against market value; inspections, insurance, monitoring, reporting and audit; the risk of slow disposal of goods.
- Global Supply Chain Finance Forum, Techniques index, 2016. Supports: inventory finance in the Loans category.
- National Credit Union Administration, Examiner's Guide: sample certificate for asset-based lending (PDF), undated. Supports: inventory advance rate "not to exceed 50%", inventory section.
- Federal Deposit Insurance Corporation, Core Analysis: Floor Plan Loans, Examination Modules, October 2022. Supports: floor plan inspections generally monthly, or more often based on inventory turnover; periodic curtailment program for unsold units; repurchase agreement with the manufacturer for new units.
- Texas Department of Banking, Loan Worksheet #1, Asset Based Lending (examination procedures), June 2000. Supports: third party inventory and accounts audit.
- Plexus Corp, via SEC EDGAR, Plexus fiscal 2026 third quarter earnings release, Form 8-K Exhibit 99.1, July 29, 2026. Supports: 116 days in inventory at July 4, 2026.
- High Court (Commercial Court), England and Wales, Mercuria Energy Trading v Citibank NA [2015] EWHC 1481 (Comm), May 22, 2015. Supports: repo transactions of about USD 271 to 272 million; tender of warehouse receipts without attornment was not delivery (paragraph 77).
- High Court (Commercial Court), England and Wales, ED&F Man Capital Markets v Come Harvest Holdings [2022] EWHC 229 (Comm), February 16, 2022. Supports: 92 purported warehouse receipts for nickel found to be forgeries.
- US Securities and Exchange Commission (EDGAR), PBF Holding Company LLC, Form 10-K for fiscal year 2021, March 2, 2022. Supports: J. Aron purchases and holds title to certain inventory; products sold back as discharged from storage tanks; repurchase of outstanding inventory at expiry.
- IFRS Foundation, IAS 2 Inventories, undated. Supports: inventories measured at the lower of cost and net realizable value.
- Alternative Reference Rates Committee, SOFR "In Arrears" Conventions for Syndicated Business Loans, July 22, 2020. Supports: Actual/360 as the standard US money market day count, used in Figure 2.
- Board of Governors of the Federal Reserve System, Selected Interest Rates (Daily), H.15, September 29, 2026. Supports: money market rates annualized on a 360-day year, used in Figure 2.
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