Stock funding is not one product. It is a use for funding: paying a supplier now for stock you will sell later. The right route depends on why you are buying. For general stock, it is often a merchant cash advance (MCA) or working capital. For stock bought to fill a confirmed order, it is often purchase order funding.
Why the gap happens
A supplier wants paying upfront, or on tight terms. You can only sell the stock after it arrives. The money is out of the business for weeks or months before it comes back. The gap is worst before a busy period, when you need more stock than usual, all at once.
Three routes
This guide covers three routes, all of which we arrange. Other kinds of stock or trade finance exist, but they are not covered here.
A cash advance
Funding upfront based mainly on your turnover, repaid from future takings. It fits if your card or bank takings are strong and regular, and at least R600,000 a year. The cost is a repayment factor agreed upfront, about 1.18x to 1.35x (indicative). On a R150,000 advance at 1.25x, for example, you would pay back R187,500, a cost of R37,500 (illustrative).
If the funder takes a share of takings, the collection grows as the new stock sells and shrinks in a quiet week. If the funder takes a fixed daily or weekly amount, it stays the same whether the stock is selling or not. Check which you are being offered. A fixed-repayment advance is set out differently by each funder, and the agreement states its legal structure.
Working capital
General funding, not tied to one invoice or asset, usually repaid in fixed instalments over an agreed term. It fits if you are paying more than one supplier, or need cash for stock and other costs at the same time. The cost is risk-based and set by the funder. It usually needs a personal surety from the director.
Purchase order funding
If you are buying stock because a customer has placed a confirmed order, purchase order funding can pay the supplier. It is settled from the proceeds once your customer pays. The funder will usually want to see the purchase order. It won't work for stock you are buying on spec. The cost depends on the transaction, and the funder confirms it.
Which fits
| You are buying stock... | Often fits |
|---|---|
| for general trade, and your card takings are strong and regular | Cash advance |
| from several suppliers, or with other costs at the same time | Working capital |
| to fill a confirmed order from a business customer | Purchase order funding |
| and your turnover is under R600,000 a year | Working capital may fit; a cash advance through us won't |
Before you sign
- Match the term to how fast the stock sells. If the stock takes four months to turn over, a repayment that ends in two will come out of other money.
- Work out the total in rand. Add up what you pay back, not just the weekly amount. Our page on the true cost of business funding shows how.
- Ask about surety. A personal surety from the director may be required on any of these. Ask whether it is needed and what it covers before you sign.
- Leave room for slow sellers. Not all stock sells on time. Make sure the repayment still works if some of it sits on the shelf.
Who we help
Quick Access Capital is a broker. We don't lend. We work with registered Pty Ltd companies and close corporations (CCs), trading for 12 months or more, with funding from R50,000. We look at more than one route and tell you which could fit. You pay us no broker fee. The funder may pay us a commission or referral fee on a funded deal.
Next step
Check your fit. Or see I need to buy stock.
Sources
- sasfa.net: A personal surety may be required