Vertical IQ and Lendovative Technologies are proud to offer the AR and Inventory Reliance Score Reports for the first quarter of 2024. These reports indicate the likelihood that a given industry sector, through its reliance on either accounts receivable or inventory, will seek financing from their 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 million new businesses have formed in the United States. With that rapid rate of expansion, it is critical for commercial lenders to study the data and determine which industries are most likely to need their services.
There has been a lot of debate among economists in recent months as to whether the U.S. market will enter a recession this year. Some see a soft landing while others see a mild downturn. Regardless of the outcome, one thing is certain for every economic cycle: Some industries will benefit from current economic conditions while others will be challenged.
Industry intelligence can offer significant advantages to those serving these industry sectors and can help them to bring value to their client base. Please note that we have not attempted to scrub these reports to accommodate credit preferences. For example, you will naturally see a lot of contractors on the list, given the rate of residential construction now in progress. We realize that many financial institutions do not offer financing in that space but have left all relevant industries on the list.
How are the scores calculated?
Think of each score as a stress test. First, we study both accounts receivable and inventory as a percentage of a company’s total assets. Then, we weigh that percentage against the growth rate being experienced in the industry. By merging these two numbers, we can estimate the short-term stresses on a specific industry.
For example, accounts receivable for the average employment services business represent 38% 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 does not take a very high 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 the same is true with inventory concentrations. Consider heavy-duty truck manufacturers, where inventory comprises over 45% of total assets and the average growth rate is 4.3%. As that growth accelerates, or declines, it will likely impact the need for inventory financing in the sector.
Vertical IQ and Lendovative will continue to produce these reports each quarter during 2024 to monitor the trends. In the meantime, we wish you and your organization a successful year. Thanks once again to RMA for providing the source data for this initiative.
If you would like to know more about the full scope of services offered by Vertical IQ and Lendovative Technology, reach out to either organization 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 insights to help you better understand prospects’ or clients’ business challenges.
Lendovative Technologies provides collateral management and document archiving solutions for financial institutions. It is a core mission of both organizations to promote small to medium-sized business (SMB) activities in the United States.