Articles
December 4, 2025
Where Inventory Finance Fits in Working Capital Optimization
# Cash and Working Capital
# Risk Management
Falcon Group helped two corporates build supplier resiliency and reduce the time inventory is on their balance sheets.
NeuGroup members from two mega-cap multinationals with completely different product lines discussed how their companies are improving supply chain resilience through inventory finance and management solutions provided to them and their suppliers by Falcon Group, co-sponsor with BBVA of the fall meeting of NeuGroup for Working Capital Optimization.
- A trading company and third-party inventory owner, Falcon buys goods from the mega-cap corporates’ suppliers, pays the vendors immediately, and holds the assets on its balance sheet, taking legal title and assuming full economic risk. It sells the goods to the mega-cap corporates only when they need them.
- This bolsters supply chain resilience, agility and flexibility without the seller or buyer holding extra inventory on their balance sheets for prolonged periods. That helps suppliers produce enough inventory so buyers can get what they need when they want it—a key priority following disruptions during the pandemic and amid ongoing geopolitical crises.
- Solutions like this free up cash flow, a major benefit for corporates committed to working capital optimization that may have exhausted tools targeting receivables and payables.
- Key to the solution is Falcon’s ability to fund the inventory at a cost less than the seller or buyer’s cost of capital, ideally removing working capital costs from the end-to-end supply chain.
Timing, alignment and revenue. In addition to the off-balance sheet treatment of inventory, one of the members working with Falcon said the solution is “a great tool” to help her company better align inventory with revenue.
- “We want the material so it aligns with when we need it and when we’re going to operate with it—versus putting it on my balance sheet well before I can activate it,” she said. That helps avoid “depreciation and capex spend when I don’t have a matching revenue source to it.”
- She added, “It’s also important to the suppliers because it really helps their resiliency in being able to build up inventory for us. We’ll have very large purchase orders and that can be very difficult for them to manage in cash flow. It’s really trying to engage at that level to say, ‘We get our orders are big, so we’re here to help you because we need you, we need your financial stability’.”
Credit ratings and costs. Buyers that push suppliers with relatively lower credit ratings to carry more goods without offering inventory finance and management solutions may pay higher costs, noted Kamel Alzarka, CEO and founder of Falcon. “Suppliers might be sitting on inventory for six to 12 months, sometimes even longer. And their cost of funds can be tremendously high. I think you are paying for that at the end of the day,” he told NeuGroup members.
- Working with buyers with higher credit ratings means Falcon can hold assets for an extended period, cutting the time a supplier must fund the inventory, allowing them to pass on savings to buyers. “Offering all your suppliers a tool like an inventory program allows them to benefit from your cost of funding,” he said. “It’s not only a working capital management tool, but allows you to reduce the cost of goods entering your warehouse.”
- One Falcon client said ordering inventory above forecasted amounts from a given supplier can also lower the vendor’s costs when “there’s a lot of setup time with different parts that they produce for us.” Larger orders “can make their runs of production more efficient, more streamlined; there’s inherent costs that go back to the supplier. We want these programs to benefit our suppliers as well.”
- Falcon in most cases sells the goods to mega-cap corporates at a markup from their purchase price.
Internal hurdles and data. One of the members said getting senior leaders within business units at his company to sign off on the inventory finance plan took time and effort. “Trying to get leaders on board with what we’ve done with Falcon, the first question we would always get was, ‘Why can’t we just tell our suppliers to hold more inventory?’
- “Trying to just get the internal teams understanding and aware of why our suppliers can’t do everything we expect them to do and replicate things the way we do it took a lot of work on the finance side,” he said.
- “But our procurement teams have been good about presenting the data and showing the ramp capacity that we plan for and how the inventory that we’re building through a program like this is going to actually be there to support volume growth.”
Falcon answers accounting questions. “’How about accounting?’ This is the first question I get for every conversation we initiate with any client,” said Mr. Alzarka. He also hears, “I don’t think it’s usable here” or “We looked at it before and I don’t think it’s achievable here.”
- This reflects a concern of some finance leaders that the inventory held by a third-party owner will be considered “debt-like” by accountants, inflating the company’s liabilities. But when he explains that Falcon’s strong balance sheet allows it to “take genuine risk” in the transaction “the accounting becomes a simple conversation.”
- “We are a real business here,” he added. “We buy the goods from the supplier, we pay the supplier, it’s a true sale for them, they get their cash. We take the goods, it’s held in a warehouse for when you as the client needs them. We have to take all risk from an accounting perspective for that to be on our balance sheet.”
- He contrasted Falcon’s business model with inventory finance structures that rely on special purpose vehicles (SPVs). “It’s not financial engineering and financial structuring, and we’re trying to push paper around. We’re genuinely taking risk in the transaction.”
What the mega-cap members say. Falcon’s “profile” allows the accounting team at one of the corporates to view the trading company no differently than any other supplier.
- The other member said her company’s accounting and legal teams “are always involved when we have these kinds of transactions for reviews. But for some of the agreements that we have in place, it’s between Falcon and our supplier. It’s not us. So that’s their agreement between them, just as you have with a receivable financing.”
- Many Falcon clients disclose their agreements with the company as contingent liabilities, Mr. Alzarka said.
Looking ahead. Mr. Alzarka expects more large corporates to follow the example of the two companies at the NeuGroup session. “Nobody wants to be first, but in the last few years there have been a number of multi-billion dollar deals with some very large corporates. And I think that is giving a lot of confidence to other people saying, well, if A, B and C have done those deals, we would like to try for ourselves as well,” he said.
- He predicts that more companies will see the logic behind “externalizing” inventory to companies like Falcon. “We think us owning assets is more efficient than you, and we can do it at a better cost than you. And we want to be a partner to your procurement people because we are offering something that helps them improve their costs by helping their suppliers. I think we’ll see more and more momentum in the market.”