Why will banks scrutinize a company’s inventory management before granting loans?
Banks want proof that the money they lend a company for inventory investments will provide a good return. If inventory is sitting, it is not paying off debt. A bank will review inventory turns and ask questions about excessive inventory, slow-moving items, aged accounts payables and how all this affects cash flow. (If the company were moving and selling inventory, it would have cash to buy more rather than approach the bank.) A company will impress a bank if it has a well-planned inventory system in place. LOUISE KIRK, CPA, is a director in the assurance services department at SS&G Financial Services, Inc. (www.SSandG.com). Reach her at (800) 869-1835 or LKirk@SSandG.com.
