Question

In the context inventory finance, explain the following: (1) Factoring; (2) Floor plan financing.

Answer 1

(1): Inventory financing is an asset based financing in which companies leverage the inventory owned by them by allowing them to draw requests as inventory is acquired. Through this the company is able to get access to funds that they need in order to run their businesses. The line is settled by financing receivables. This is usually done by factoring which entails paying back once receivables are financed. The necessary funds are available only once the inventory is acquired.

(2): In the context of inventory finance floor plan financing entails providing short term loan that is used by retailers to finance their purchases. The loans are pledged against the inventory that has been purchased by the retailer. It should be noted that floor plan financing works like a revolving line of credit by allowing the borrower to get financing for the goods being sold by the borrower.