2 min read
The seasonal stock commitment problem
A retailer ordering Christmas stock in August, or summer inventory in January, must commit cash — or a credit facility — many weeks before those goods generate any sales revenue. Suppliers, particularly overseas manufacturers, frequently require a deposit on order and balance on shipment, front-loading the cash demand further.
For a limited company with finite working capital, a large seasonal order can deplete reserves at the worst possible moment, leaving the business exposed to any unexpected expense between order and peak trading.
Stock finance and trade finance facilities
Trade finance facilities allow a lender to pay a supplier on the retailer's behalf, with the retailer repaying the lender over a term that aligns with the expected stock turn — typically 90 to 180 days. This preserves the company's own cash for overheads, wages and other running costs during the pre-season period.
Stock finance can also be secured against existing inventory, releasing cash tied up in the warehouse. Lenders will generally apply a discount to stock value to reflect the risk that goods cannot be sold at full retail price in a forced realisation scenario.
Revolving credit facilities for stock cycles
A revolving credit facility gives the company a pre-agreed borrowing limit that can be drawn down and repaid repeatedly as the stock cycle turns. This suits retailers with multiple buying seasons or continuous replenishment cycles better than a series of individual term loans.
The facility limit is typically agreed based on the company's turnover, trading history and balance sheet strength. Illustrative advance rates and fees vary between lenders; any figures quoted in an application are not a confirmed offer.
Managing supplier payment terms
Negotiating extended payment terms with suppliers — 60 or 90 days rather than payment on delivery — is the most cost-effective way to bridge the stock funding gap and does not require a formal credit facility at all. Larger retailers with strong buying power are better placed to negotiate these terms; smaller independents may need finance to supplement shorter supplier credit lines.
Frequently asked questions
Can a retailer borrow against stock it already holds?
Some lenders offer stock finance secured against existing inventory. The advance rate — the percentage of stock value made available — is typically lower than for invoice finance because stock is less liquid than a receivable. Lenders will want to understand the nature of the goods and their marketability.
What happens if seasonal stock does not sell through?
Unsold stock reduces the company's ability to repay a stock finance facility from trading receipts as planned. Directors should assess realistic sell-through assumptions and ensure the facility terms allow sufficient time to clear inventory, including through promotional pricing if necessary.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.