Published: 03/31/2026
Last updated: 04/07/2026
Most product businesses discover inventory financing the same way; A big order comes in, a seasonal window is closing, or a supplier wants payment and the cash just isn't sitting there – because it's already in the last order, still making its way through retail.
That's the moment. And it's a frustrating one to be making your first call to a financing provider.
Here's the thing: the cash gap between paying your supplier and getting paid by your customer isn't a problem that shows up once and goes away. At £1M+ turnover, it's baked into the business model. You're placing larger orders. Running overlapping production cycles. Managing retail relationships that pay on 60 or 90-day terms, sometimes longer. The amount of cash tied up in the supply chain at any given moment isn't a rounding error anymore – it's a number worth managing deliberately.
Inventory financing is built for exactly this. A financing provider pays your supplier on your behalf. You repay once the goods have sold and the money's come back in. Your own cash stays free to do other things – like fund the next order, or the marketing campaign that shifts the one you just placed.
This guide covers how it works, what it actually costs, and how to know whether it's the right fit for where your business is right now.
💡 Key takeaways
Inventory financing pays your supplier on your behalf, so you can place orders without tying up your own cash in the production cycle.
It's not a bank loan – no collateral, no lengthy approval, no personal guarantee required.
The real cost comparison isn't "financing fee vs zero." It's "financing fee vs the growth you'd otherwise have to pass on."
At £1M+ turnover, your cash conversion cycle is the number that defines how much working capital you need – and where financing creates the most leverage.
Inventory financing and invoice financing solve different parts of the same problem. Many growing brands use both.
The time to set up a facility is before you need it urgently – not when a seasonal window is closing.
What is inventory financing?
Inventory financing is a type of working capital funding where a financing provider pays your supplier on your behalf. You repay the facility – typically within 30 to 120 days – once the goods have sold and your customers have paid.
The structure is straightforward: instead of draining your own cash reserves to fund a production run, you use external capital for that specific purpose. Your cash stays available for everything else – marketing, operations, staffing, the next order.
It's not a business loan in the traditional sense. You're not borrowing against assets or pledging collateral. The financing maps directly to a single transaction: one purchase order, one supplier payment, one repayment window. Some providers, including Treyd, let you choose your repayment date invoice by invoice – so the structure flexes with how your business actually operates rather than forcing everything into a fixed schedule.
The key distinction from other forms of financing is the specificity. A bank revolving credit line is general-purpose. Invoice financing unlocks cash from receivables you've already created. Inventory financing sits at the start of the cycle – it funds the thing that creates the receivables in the first place.
Why product businesses face this problem – and why it gets worse at scale
The cash gap that inventory financing solves is structural to physical product businesses. It's not a sign of mismanagement. It's just the operating model.
This isn't a fringe problem. According to the British Business Bank's 2026 Business Finance Survey,, working capital is the single most cited reason UK SMEs seek external finance – ahead of investment in growth or fixed assets. A 2026 report from the House of Commons Business and Trade Committee found that late payment alone is now closing 38 UK businesses every single day, and that payment delays of 60 to 90 days have become routine for many product and distribution businesses. The same report estimates UK SMEs are collectively owed between £22.7 billion and £112 billion in unpaid invoices, with 44% of all invoices paid late. The Committee's conclusion was unambiguous: "Cash flow is king."
What that means in practice is that the gap between paying your supplier and collecting from your customer isn't an edge case or a bad month. It's baked into how product businesses operate – and it compounds as you scale.
Here's how a typical inventory cycle actually plays out, and where your cash gets tied up at each stage:
Purchase order placed – no financial impact yet, but a commitment is made
Deposit paid to supplier – cash goes out; a prepayment asset is created on your balance sheet
Goods manufactured and shipped – cash remains committed; goods in transit are still an asset
Goods received – inventory lands on your balance sheet
Supplier payment due – remaining balance goes out; accounts payable clears
Goods sold to customer – revenue recognised; inventory decreases; accounts receivable increases
Customer pays – cash comes in; the cycle completes
The gap between step 5 (paying your supplier) and step 7 (collecting from your customer) – plus the time goods spend in transit and in the warehouse – is your cash conversion cycle. For many product businesses at £1M+ turnover, that gap spans 90 to 180 days. Every pound of goods cycling through that process needs to be funded for the duration.
What changes as you scale is the size of that gap. A brand at £500k revenue might have a manageable cash requirement at any given time. The same brand at £2M might have several production runs, multiple markets, and retail relationships all at different payment stages simultaneously. The working capital burden is front-loaded: the capital requirement arrives well before the profits that fund it catch up. That's the core reason why profitable businesses at this stage still run into cash constraints.
The cash conversion cycle: the number that tells you how much you need
The cash conversion cycle (CCC) is the most useful single metric for understanding your working capital position – and for judging whether inventory financing makes sense for your business.
CCC = DSO + DIO − DPO
DSO (days sales outstanding): how long customers take to pay after being invoiced
DIO (days inventory outstanding): how long stock sits before it sells
DPO (days payable outstanding): how long you take to pay suppliers
Here's how that plays out in a real example. Say your customers take 50 days to pay (DSO: 50), your stock sits for 90 days on average (DIO: 90), and you pay your suppliers within 20 days because you've got limited leverage on terms (DPO: 20). Your CCC is 120 days.
On £2M revenue with 40% cost of goods, that implies roughly £260,000 of working capital permanently tied up in the cycle. That capital has to come from somewhere – from your own cash reserves, from external financing, or from growth you've had to pass on.
Rule of thumb: For every 10 extra days of DSO on a £1M revenue business, roughly £27,000 more cash is permanently tied up in outstanding invoices. The same logic applies to DIO – every 10 days of slower inventory turnover locks up an equivalent amount of capital.
Inventory financing directly addresses the DPO side of this equation. By funding your supplier payment, it gives you 30, 60, 90, or 120 extra effective days before cash has to leave your business – compressing the cycle and freeing capital that would otherwise be stuck in the supply chain.
💡 What a negative CCC looks like
Some businesses achieve a negative CCC – collecting from customers before they have to pay suppliers. E-commerce businesses with fast inventory turns and upfront customer payment can reach this. A negative CCC means the business is essentially funded by its customers: every unit of growth generates cash rather than consuming it.
Most product businesses at scale aren't there yet – but understanding the CCC makes clear what you're working toward, and where financing creates the most leverage in the meantime.
How inventory financing works – step by step
Here's how a typical transaction works with a provider like Treyd:
You receive a purchase order or decide to place a production order – a confirmed wholesale order, a seasonal restock, a new product run.
You upload the supplier invoice to the financing platform. The process is designed to be fast – most applications take minutes, not days.
The financing provider pays your supplier directly. Your supplier receives full, on-time payment. From their side, nothing unusual has happened.
The goods are manufactured, shipped, and delivered. You manage your supply chain as normal.
You repay the financing facility on your chosen date – aligned to when you expect to receive payment from your customers. With Treyd, you pick the date that works for your cash flow, invoice by invoice.
The financing fee is charged for the period you use the facility. With Treyd, repaying early immediately replenishes your limit – so you can use the facility again sooner, getting more cycles out of the same credit line.
What does inventory financing actually cost?
The headline cost is a financing fee – typically expressed as a percentage of the invoice value, charged for the period you use the facility.
But the more useful question is: compared to what?
Most founders instinctively compare the financing fee against the cost of using their own cash – which they mentally price at zero. That's the wrong comparison. Your own cash has an opportunity cost. Every pound you tie up in inventory for 90 days is a pound that isn't going into your next marketing push, your next production run, or the bulk order that would bring your unit costs down by 15%.
A more honest comparison: if your gross margin is 40% and you use inventory financing to fund a £60,000 order you'd otherwise have had to delay or scale back, the question is whether the margin on that order exceeds the financing fee. In most cases it does – by a significant margin.
A note on early payment discounts: Some suppliers offer 1–2% discounts for payment within 10 days rather than 30–60. Whether to take these depends on your cost of capital. If your financing costs more than the discount saves, pay on terms and keep the cash. If financing is cheaper, take the discount and use the facility to bridge the gap – you come out ahead on both.
The other comparison worth running is against equity. Many founders at the £1M–£5M revenue stage consider raising a round to solve a working capital problem. If your business is worth £4M and you give up 10% to raise £400k for recurring working capital needs, you've effectively paid £400k in future equity value for a structural problem that a financing facility handles for a fraction of that cost. Equity makes sense for strategic bets. For a cash gap that repeats every order cycle, there's almost always a better tool.
Inventory financing vs. invoice financing: what's the difference?
These two products often come up in the same conversation, and they're sometimes confused – but they solve different parts of the same problem.
Inventory financing funds the outbound side of your cash cycle. It pays your supplier before goods are made and shipped. It's useful when your constraint is: "I can't afford to place this order without draining my reserves."
Invoice financing (also called invoice discounting or factoring) unlocks cash from the inbound side. It advances a portion of invoices you've already raised but haven't been paid for yet. It's useful when your constraint is: "I've shipped the goods, raised the invoice, but I'm waiting 60 days to get paid." Given that 44% of UK invoices are paid late – and the average SME is owed tens of thousands in outstanding receivables at any given time – this side of the cycle is far from trivial.
The two are complementary. Inventory financing bridges the production cycle. Invoice financing shortens the collection cycle. Used together, they compress your cash conversion cycle from both ends – dramatically reducing the working capital you need to fund from your own resources. Many product businesses at scale end up using both.
If you're choosing where to start: inventory financing is usually the right first step for businesses where the primary constraint is placing production orders. Invoice financing makes more sense when you've already shipped product and the bottleneck is how quickly you get paid.
Is inventory financing right for your business?
It's not the right tool for every situation. Here's a simple framework for thinking it through.
It makes most sense if:
You're placing regular purchase orders with suppliers – domestic or overseas
Your cash cycle is 60 days or longer between placing an order and receiving payment
You're turning down or scaling back orders because of cash constraints rather than demand
You're growing fast enough that the cash cycle can't keep pace with your order volumes
You want to keep full ownership of your business without giving up equity to solve a structural working capital problem
It's less likely to be the primary solution if:
Your cash cycle is very short and you collect quickly – the financing fee may not be worth it
Your constraint is on the receivables side rather than the production side – invoice financing would be the better fit
You already have flexible bank facilities in place with a cost of capital that beats specialist providers
💡 The honest test: If you've turned down an order, delayed a restock, or held back a product launch in the last 12 months because the cash wasn't there – that's the signal. That's exactly the problem inventory financing is built for.
The pattern worth knowing: Product businesses rarely fail because demand dried up. The most common failure mode is growing fast, reinvesting every pound back into inventory, building no cash buffer – and then hitting a single disruption (a delayed shipment, a customer paying late, a supplier demanding faster payment) with nothing to absorb it. What looked like a healthy business stalls almost overnight. Inventory financing doesn't just help you grow faster. It gives you a buffer that makes growth safer.
Real scenario: using inventory financing for a seasonal restock
A homeware brand at £1.5M turnover places its main autumn restock order in June. The order value is £75,000. The timeline:
Day 0: 40% deposit paid to manufacturer (£30,000 goes out immediately)
Day 60: Manufacturing complete, balance of £45,000 due before goods ship
Day 90: Goods arrive and are distributed to retail partners
Day 150: Retailers settle invoices on 60-day terms
That's five months between the first payment and the last receipt – with £75,000 sitting in the cycle the entire time. Meanwhile, the brand still needs to fund operations, the autumn marketing campaign, and prepare stock for a second retail window.
Self-funding means £75,000 is unavailable for anything else from June to November. At £1.5M turnover, that's a material constraint on what else the business can do during that window. If a second retail opportunity comes up in August, you're already stretched.
With inventory financing in place, Treyd pays the manufacturer directly – both the deposit and the balance. The brand's own cash stays available for marketing, operations, and the ability to respond to demand during the peak selling window. The financing fee is a fraction of the margin generated by having the right stock in place when retailers want it.
This is the compounding benefit of inventory financing at scale: you stop making those trade-offs. Cash stops being the thing that decides which opportunities you can take.
When to set up a facility – and why timing matters
One of the most consistent patterns among product businesses that manage working capital well: they build the relationship with a financing provider before they urgently need it.
When you come to market in a crisis – a seasonal window closing, a supplier demanding immediate payment, an unexpected order that's too big for your current cash position – you're evaluating options under pressure, potentially accepting worse terms, and starting from scratch on onboarding. None of that is ideal.
When you set up a facility in calmer conditions, you have time to compare providers properly, understand the total cost, model different scenarios, and onboard without urgency. The facility sits ready when you need it. With Treyd, onboarding takes hours rather than weeks – but even so, setting things up before the peak order cycle is always the better move.
Think of it the same way you'd think about a bank relationship: the time to have it in place is before the moment you need it, not after.
Summary
Inventory financing is purpose-built for the cash gap that sits at the heart of every physical product business. It pays your supplier so your cash doesn't have to – and lets your own capital do something more productive in the meantime.
At £1M+ turnover, that gap is bigger and more predictable than it was at earlier stages. It can be modelled, planned around, and funded intelligently – rather than stumbled into every order cycle.
The real question isn't whether you can afford to use it. It's whether you can afford not to – and how many orders you've already scaled back while working that out.
→ How inventory financing works with Treyd
About Treyd
Treyd is working capital built for product businesses. We pay your suppliers so your cash doesn't have to – giving you the flexibility to place orders, fund launches, and grow without cash flow becoming the bottleneck.
Buy first, pay later. No collateral, no lengthy bank process. Just a simple, human experience built around how product businesses actually work.
Over 1,500 brands trust Treyd to fund their growth. See how at treyd.io/customers →
💜 Grow faster. Keep control. Bet bigger.
