Vertical IQ and Lendovative Technologies are proud to offer the AR and Inventory Reliance Score Reports for the second quarter of 2024. These reports indicate the likelihood that a given industry sector, relying on either accounts receivable or inventory, will seek financing from its financial institution or a non-bank funding source during the next six months.
From the beginning of 2021 through the present day, more than 3.5 million new businesses have formed in the United States. With that rapid expansion rate, commercial lenders must study the data and determine which industries most likely need their services.
While there has been much speculation regarding economic growth versus contraction in the US economy in recent months, GDP expansion has continued. With core consumer price index (CPI) measures now under control and interest rates likely to begin an upward trend by year-end, small businesses will continue to be influenced by both macro- and microeconomic conditions within their industries. The financial institutions and non-bank lenders serving their working capital needs will benefit from knowing where the most likely candidates are for accounts receivable and inventory financing.
How are the scores calculated?
Think of each AR and Inventory Reliance Score as a stress test. First, we study accounts receivable and inventory as a percentage of the total assets of an average company within a particular industry. Then, we weigh that percentage against the industry’s growth rate. By merging these two numbers, we can estimate the short-term stresses on a specific sector.
For example, accounts receivable for the average employment services business now represent 43% of total assets, and the average growth rate in that industry is 6.9%. When that much of your business is tied up in accounts receivable, it takes a low rate of growth to require short-term working capital financing. That is why the sector is so popular among asset-based lenders and factoring companies.
Much of the same is true of inventory concentrations. Consider auto parts distributors, where inventory comprises nearly 52% of total assets, and the average growth rate is 4%. As that growth accelerates or declines, the need for inventory financing in the sector will likely be impacted.
Vertical IQ and Lendovative will continue to produce these reports each quarter during 2024 to monitor trends. In the meantime, we wish you and your organization a successful third quarter. Thanks again to the Risk Management Association (RMA) for providing the source data for this initiative.
If you want to know more about the industry intelligence offered by Vertical IQ and Lendovative Technology, you can contact either organization directly at info@verticalIQ.com or info@lendovative.com.
Vertical IQ is a nationally recognized leader in industry intelligence. They deliver actionable, convenient, focused, and easy-to-digest Industry Intelligence to help you better understand prospects or clients’ business challenges.
Lendovative Technologies provides collateral management and document archiving solutions for financial institutions. Both organizations’ core missions are to promote small—and medium-sized business (SMB) activities in the United States.