Factoring means selling a receivable, and inventory is not a receivable: nobody owes you anything for goods still sitting in your warehouse. That is why searching for inventory factoring leads to products with different names, and it is worth understanding the difference, because the funding that does exist against stock is secured and priced very differently from receivables finance.
What can actually be funded against stock
Two products, and they sit at different points in the cycle. Purchase order finance funds the making or buying of goods against a confirmed order from a creditworthy customer, so the security is the order rather than the stock. Inventory finance lends against goods you already hold, usually as a percentage of a conservative valuation, and often alongside a receivables facility so the funder can follow the value from stock to invoice to cash. Neither is factoring and neither is priced like it.
Why lenders are cautious about goods
A receivable is an obligation from a business that can be credit-checked. Stock is a physical thing whose value depends on whether anyone wants it, and a lender that has to sell it is selling into the worst possible market, at auction, at the moment your business failed. Advance rates against inventory reflect that: expect a fraction of cost rather than of retail, expect fast-moving, standard, resaleable goods to be treated far better than seasonal or bespoke ones, and expect the lender to ask how quickly the stock turns.
The sequence most businesses actually need
Purchase order finance to make or buy the goods, then invoice finance to fund the receivable once they have shipped. Several funders offer both under one arrangement, which is usually cheaper and always simpler than running two facilities that have to hand over to each other at the moment of despatch. If a funder offers only one half, ask specifically what happens on the day the order becomes an invoice, because that hand-off is where a badly-assembled pair of facilities leaves a business short.
Questions people ask about factoring inventory
Can you factor inventory?
No. Factoring is the purchase of a receivable and stock is not one. What exists instead is inventory finance, which lends against goods you hold, and purchase order finance, which funds the fulfilment of a confirmed order.
How much will a lender advance against stock?
No lender in this record publishes a figure. Expect a percentage of a conservative cost valuation rather than of retail, expect fast-moving standard goods to attract a better rate than seasonal or bespoke stock, and expect to be asked how quickly the inventory turns.
Is purchase order finance easier to get than a loan?
For a business with a confirmed order from a strong customer, often yes, because the funder is assessing that customer rather than your trading history. It is one of the few routes available before a business has the revenue the published lending floors require.