Invoice financing vs. Inventory financing
Although invoice financing and inventory financing may appear to be similar concepts, there are at least two fundamental differences: the depreciation of the money and the collateral provided. With invoice financing, the amount of money you owe your suppliers remains the same over time, no matter how much time has passed. This gives the business cash flow stability.
Inventory financing, on the other hand, can appreciate or depreciate over time, depending on inflation. If a lender grants you the financing to purchase goods for an amount equal to the value of your inventory, and you fail to sell it at the planned rate, there will be a difference between the amortization of the loan and the value of the collateral, especially in high-inflation scenarios.
In this regard, two scenarios are possible:
The first is inflation, where money loses value. In this case, companies will tend to accumulate inventory to sell it at a higher price than its acquisition cost.
The second is deflation, where the currency appreciates. In this case, the currency appreciates and the price tends to fall, generating a negative difference for the company.
In addition, in the case of inventory financing, the goods themselves act as collateral for the line of credit or loan. In invoice financing, on the other hand, other types of collateral are required, discounting part of the invoice, which acts as the interest rate for the transaction.
