Finance for buying stock and inventory

Stock is the one asset that’s meant to leave. A lender looking at your shelves sees something odd: goods that are valuable only while they keep moving, that may be worth far less in a forced sale, and that a supplier might still technically own. That view explains almost everything about how inventory gets financed in Australia, and why the options that work best usually aren’t secured on the stock at all.

This page is about the regular, year-round buying that keeps a business stocked. If your need is a once-a-year build-up, the seasonal stock page is the better starting point.

Why lenders are wary of stock as security

Picture a lender that has to recover its money from a business that’s stopped trading. Debtors still owe their invoices, and they usually pay. Stock is different. Fashion dates. Food expires. Spare parts only suit certain models. A warehouse of goods that cost $400k might bring a fraction of that through a liquidator’s auction.

There’s a second layer: other people’s claims. Many suppliers sell on terms that keep ownership of goods until they’re paid, known as retention of title. When a supplier lodges that claim on the national PPSR ahead of delivering the goods and claims it as a purchase money security interest, it can rank ahead of a lender’s general security agreement over those particular goods.

So an inventory lender has to ask: how much of this stock is really ours to sell? Typically the honest reply is “well under what you paid”, which is why stock-based limits tend to be lower than invoice-based ones.

What fits a stock purchase?

Finance	How it works for stock	Suits	Keep in mind
Trade finance	Pays your supplier now; you repay in an agreed period	Importers and wholesalers buying in batches	Needs a trading track record and supplier paperwork
Import finance	Funds overseas purchases through to landing	Goods shipped from overseas factories	Currency movements and shipping delays affect timing
Line of credit	Each order is drawn down, then cleared from sales	Frequent, regular orders	Discipline needed so the line doesn’t become permanent debt
Unsecured business loan	One advance, its size set by deposits and revenue	One larger buy, such as a new product range	Fixed repayments start whether the stock has sold or not
Supplier trade credit	30, 60 or 90 days to pay from the supplier	Every business that can get it	Late payment can cost the account; read the terms
Property-secured loan	Borrow against a home or commercial property	Large buys or a business banks won’t fund on cash flow	Better for lasting needs than for each order

Banks remain a strong choice for established businesses with clean financials: their trade facilities and overdrafts are often the least expensive option going. Where a bank won’t count stock, or wants more property than you have, non-bank stock and trade financiers fill much of the gap.

Let your stock turn set the term

The most useful number for stock finance is how long goods sit before they sell. Divide the average value of stock on hand by your annual cost of goods sold, then multiply by 365.

Stock days	What it suggests
Under 30	Short trade finance or a line of credit repaid each month fits well
30 to 90	Trade finance with a 60 to 120-day term, or a revolving line
Over 90	Look hard at what’s slow; borrowing for slow stock just funds the problem

A business that turns its stock every three weeks can borrow, sell and repay within one cycle. One whose stock sits for five months needs longer money, or a clearer look at which product lines aren’t earning their space.

Ready to talk through a stock purchase? Send us the details and we’ll look at the turn, the supplier terms and the right fit.

Two cash costs importers often miss

GST at the border. Imported goods usually attract GST when they clear customs, paid alongside duty and freight. You claim it back later, yet the money is gone long before that credit shows up in a refund. Under the ATO’s deferred GST scheme, approved importers account for that import GST through their monthly activity statement, so nothing is handed over at the wharf. You need an ABN, GST registration, online BAS lodgement with electronic payment, and you must report monthly. Quarterly lodgers have to switch first, and the change only takes effect from the next quarter.

Freight and landing costs. Freight forwarders, port charges and local delivery can add a meaningful slice to the landed cost. Budget for them as part of the stock purchase, not as an afterthought.

Is the bulk-buy discount worth borrowing for?

Suppliers often offer better pricing for larger orders. Whether it’s worth financing comes down to dollars, not percentages:

1. Work out the saving. The discount in dollars on the larger order compared with buying normally.
2. Count the extra holding time. Estimate how many additional weeks the larger order will occupy the warehouse.
3. Cost the finance for that period. Use the unsecured business loan calculator or a lender’s quote to find the total dollar cost, fees included.
4. Add holding costs. Extra storage, insurance and the risk of damage or obsolescence.
5. Compare. If the saving clearly beats steps three and four combined, borrow. If it’s close, don’t.

Worked example: an auto parts distributor

This is an illustration only. A parts distributor in western Sydney usually orders about $60k of stock a month from its main supplier and turns its stock roughly every 45 days. The supplier offers a 9% discount on a single order of $240k, four months’ worth.

Item	Amount
Normal cost of four months’ stock	$240k
Discount on the bulk order	$21.6k
Finance needed (above usual monthly buying)	$180k
Total finance cost over about four months, including fees	around $9k
Extra storage and insurance	around $3k
Net benefit	around $9.6k

The numbers work because the parts are fast-moving lines the distributor sells every week, and the supplier has no retention of title complications with the lender. The owners use a trade finance facility that pays the supplier directly and gives them 120 days to repay. As each month’s stock sells, they pay down the facility, so the cost falls over the term rather than running on the full amount.

Had the bulk order been for slow-moving parts with 150 stock days, the same calculation would have shown a loss.

Keeping inventory finance healthy

• Run an aged stock report each month. Anything that hasn’t moved in 120 days needs a decision.
• Know which suppliers hold PPSR registrations over goods you hold. A search of the register in your business’s name shows who has registered against you.
• Keep stock purchases and wages on separate facilities if you can, so a slow month for sales doesn’t put payroll at risk.
• Pay suppliers on time. Trade terms from a supplier who trusts you cost nothing; see our guide to paying suppliers looks at how to protect it.

Wholesalers face the stock question every day; our wholesalers and distributors page covers how lenders view that industry in more depth.

Funding your next stock order

Well-funded stock lets you say yes: to the supplier’s better price, to a new product line, to the customer who wants it today rather than in three weeks. Running short of inventory means lost sales you never see on a report.

Tell us about the purchase. It’s roughly a minute’s work and asking doesn’t go anywhere near your credit file. It isn’t relayed down a chain of lenders; our own people handle it. A specialist reviews it and phones you back. Give us honest figures for monthly turnover, stock on hand and how quickly it sells, so the very first suggestion is a facility that genuinely suits.

Get my stock purchase funded →