Any company who has attempted to obtain a small business loan through traditional means has learned the hard truth of bank financing. Many loans will not be approved for a company who may need the money at that moment. Many times, the banks expect a company to apply for a loan when they do not need it so they can use it when it is needed for events, such as late payments from a client or a delayed shipment.
The toy business is no exception to this rule. Obtaining a bank loan to continue production services is difficult. Therefore, many companies will turn to international trade finance companies like Tradewind to obtain the funds to continue to sell and purchase inventory while they wait for current or delayed invoices to be paid.
How Supply Chain Financing Works
Many companies require supply chain financing because they cannot immediately pay their invoices. Sometimes they may wait to pay an invoice until revenues come in from sales of the commodity. The standard in the industry for this to happen is 90 to 120 days. Yet, the producing company is looking to continue the business cycle; they need payment immediately.
This type of financing is a way in which businesses have access to capital to pay invoices. To obtain this working capital, a business must sell its invoices to a financing company, like Tradewind. The financing company will pay the invoices minus the fee for supplying the working capital. Then, the collection of the invoices is left in the hands of the third-party buyer, i.e. the financing company, who will collect the money from the original customer.
Supply Chain Financing in the Toy Industry
Supply chain financing is a great option for any business looking to continue to offer goods and move inventory, even when the market may be less than optimal. Since business growth and movement is fluid, this third-party financing allows companies to maintain working capital on a steady basis as sales of already purchased product sits on the shelf.
When dealing with the toy industry, the reality is toys are never going to become useless commodities. There will always be children in the world, and those children will always need toys. However, toys are always changing. Children no longer play with old wooden dolls and sticks. They now play with more costly items, such as electronic toys and toys made with better quality materials. With this constant evolution, it always makes it necessary to have working capital on hand. Therefore, supply chain financing is a beneficial way to allow for changes in the industry.
Requirements for Financing
To receive financing from a financial services firm like Tradewind, the company should, in general, have annual revenue of at least five million dollars and up to or above $500 million. If your company is below this threshold, it does not mean you do not qualify for the benefits; in some cases, Tradewind works with smaller companies.
In addition to a monetary benchmark, Tradewind has set a few parameters for the companies it typically works with:
- Trade in tangible goods
- Minimum invoices of $5,000
- Cross-border sales/purchases
- Payment methods: (open account, D/P, CAD, D/A, and sight and usance L/Cs)
These details will allow a supply chain financing company to have confidence in working with a business. The key is to be able to confirm the factoring firm like Tradewind will receive payments on the receivables and the company will be able to move and receive more inventory to create more invoices.
The Benefits of Third-Party Financing
Third-party financing provides working capital to a company that may not be able to obtain a traditional bank loan. The benefits have been visible for several years within many industries. Suppliers can receive early payment which leads to additional cash flow for both the buyer and seller. This allows each of them to continue producing and selling their products to keep the process going without delays.
Third party financing is the best solution for creating working capital that is suited to help all parties involved. Tradewind Finance is an international trade finance company that has been helping companies obtain working cash flow through supply chain financing for nearly 20 years and continues to help companies grow nationally and internationally.