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We are a large private distributor of industrial supplies and equipment. Currently we are negotiating with our primary lender on our credit facilities. We have a common bank financing arrangement, with a collateral base limitation tied to a percentage of trade receivables and inventory. I understand from talking to other contacts that 80 percent on accounts receivable and 50 percent on inventory are quite common, but that the percentages may be higher if the asset management is good.
My questions for those with similar arrangements are:
1. What advance-rate percentages are you allowed as collateral on receivables?
2. What advance-rate percentages are you allowed for collateral on inventory?
Thanks in advance for your response.
Anonymous
Response:
We are a distributor as well, primarily selling construction materials (very little equipment) to construction contractors. Our advance rates are 75% on eligible trade accounts receivable and 40% on inventory.
Anonymous
Response:
We are a commodity-based manufacturer. Consequently, the advance rates for our inventory of 85% may be high in comparison to other types of businesses. Our advance rate on receivables is 80%.
Anonymous
Response:
We have 80% on accounts receivable and 50% on inventories (raw and finished goods). We were at 85% and 60% at one time, but the banks have ratcheted it down to the norm in recent years. It hasn’t been an availability issue, so we haven’t pressed it. We have excellent asset management and could use that card, if necessary, to increase collateral for a larger advance ceiling.
Anonymous
Response:
I have usually seen the 80% on receivables that are typically less than 90 days past due and 50% on inventory. I worked for one company whose inventory was a commodity (hardwood lumber) with a standard quoted market price, based on the grade of the lumber. We were able to get the bank to go up to either 65% or 70% of the market value of this inventory; I don’t recall the exact percentage now.
Gary Rubin (garyr625@aol.com )
Response:
Eighty percent on receivables and 50% on inventory is pretty standard. On receivables, this applies only to domestic receivables, as foreign receivables are not included without some form of insurance.
Michael J. Pollock (Pollock@obcorp.com )
Response:
Eighty percent and 50% are standard advance rates. I have seen them as high as 85% and 60% for very high quality receivables and inventory, respectively, but that is not typical.
Tim Andersen (tandersen@banddfoods.net )
Response:
Our bank allows 80% on account receivable balances that are not 90 days past due. The account is also excluded if 20% of the account balance is 90 days past due. Also, a single account that makes up 25% of the total receivable balance must be approved by the bank. Inventory of finished goods and purchased parts are allowed at 50%.
Edward T. Odmark (EOdmark@Ultrafryer.com )
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