How do you fund inventory without equity?

Fund inventory by matching its cash cycle to customer deposits, supplier terms, or financing against credible orders and receivables. Choose the instrument after mapping when you must pay and when the buyer is contractually expected to pay you.

An order can change what is financeable

Chapter 5 uses the early Apple example: the Byte Shop ordered 50 assembled computers, creating a customer commitment around which production could be organized. The source is Paul Terrell’s account and associated historical material, not a promise that a modern lender will finance any purchase order. The Byte Shop order.

A signed order may still contain cancellation, acceptance, or return terms that make it weak collateral. Inventory can become obsolete, a buyer can pay late, and production can cost more than planned. Read those conditions before treating an order as cash.

Worked example: bridge the collection gap

Illustrative assumptions. You need $80,000 for a batch that sells for $120,000. A 40% customer deposit brings in $48,000, leaving $32,000 of production cost to cover. If the supplier defers $20,000 until after customer collection, the immediate gap falls to $12,000.

This example excludes operating overhead, shipping, tax, returns, and financing charges. Put those in the forecast and test a delayed collection. A financing offer should cover the gap for long enough to collect, without a repayment schedule that creates a second shortage.

Ask in the right order

First ask whether the customer will prepay for a concrete benefit. Then ask the supplier about milestones and payment terms. Compare suitable PO, receivables, or inventory products for the remaining gap. Do not buy an uneconomic batch simply because someone will lend against it; calculate the margin left after every financing and fulfillment cost.

This page is an original summary of an argument developed in Speedstrap, not an extract from the book.

From Chapter 5 of Speedstrap. Find the book on Amazon.

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