Stock going cheap? How to fund a bulk buy before it’s gone

When cheap stock is worth chasing

Cheap stock turns up in predictable places, and each has a different deadline and a different way of paying.

• Liquidation and insolvency sales. A liquidator or administrator is selling stock to raise cash for creditors. Deals can be extreme, and the timetable is the liquidator’s, not yours.
• Supplier clearance. A wholesaler or distributor wants to empty a warehouse before a new range or a new financial year.
• End-of-season and ex-display. Last season’s range, display units and returns, priced to move.
• Container and pallet lots. A volume price that only applies if you take the whole lot.
• Closing-down sales. A competitor or a neighbouring shop is exiting and selling fixtures and stock.
• Auctions. Timed sales where the price is the hammer price and payment is due fast. If the thing you are bidding on is property rather than stock, see financing a deposit and settlement at auction.

What they share is a clock. The bargain exists because someone needs cash or space quickly, and that urgency passes to you. The question is never only “is it cheap?” It is “can I pay in time, and can I sell it?”

The margin maths: does the discount cover the cost?

A cheap price is not a profit. A profit is what remains after you have paid for the money, the freight, the storage and the time it takes to sell. Run this before you commit.

Here is a worked example, clearly an illustration. Take a homewares retailer offered a clearance lot that would normally cost $60,000 at wholesale, priced at $36,000. The retailer expects to sell the lot for around $60,000 over ten weeks.

The discount-versus-cost test is simple. The total cost of the finance should be a small slice of the discount, not a large one. Here it is $3,000 against a $24,000 discount, one eighth of it. If the quote had come back at $12,000, half the gross margin would be gone before storage, and a ten-week sell-through that stretched to six months could turn the deal negative.

The test has three inputs you control: the real discount, the real finance quote and a realistic sell-through time. Change the time to double and rerun the numbers. If the deal still works, it is sturdy. If it works only on the best case, it is a hope.

For how the cost of a facility is built up, see business loan costs.

Your funding options, side by side

Supplier terms come first. If the seller is a business you already deal with, ask for a staged pickup or seven to thirty days to pay. It costs nothing to ask, and it removes the finance cost entirely. For the broader picture, see stock and inventory finance and early-payment and bulk-buy discounts.

Which lane fits your business

Property-secured: if you own property, you can borrow from $20,000 to $5M against the equity, meaning its value minus what is owed on it. A lender will lend against a portion of that equity and weigh the exit just as heavily. Funded in as little as 24 hours with no financials, it suits big lots and a business whose bank statements do not show the full picture. Our guide to unlocking property equity for business explains how it works.

Cash-flow: no property needed. You need an active ABN, six months of trading and business bank statements through a read-only link, and the amount is sized to your turnover. It suits smaller lots and fast turnarounds.

If cash is the pinch because customers are slow to pay rather than because of this one lot, read cash flow gap finance first. The cheap stock may be a symptom of a bigger timing problem.

The risks: dead stock, storage, GST and tied-up cash

Lenders ask about the exit because most of the losses on stock deals happen after the purchase. Think like a lender and plan the sale before you plan the payment.

• Dead stock. Stock that nobody wants at any price. Cheap because it is slow, not cheap because the seller is in a hurry. Name three buyers or channels before you commit.
• Sell-through time. Your repayments run on a calendar, not on sales. Work out how many weeks it takes to sell the lot at a realistic pace, and make sure the loan period is longer.
• Storage and handling. Pallets cost money to hold, insure and move. A lot that needs a warehouse you do not have is not a bargain.
• GST timing. The GST in the price is paid upfront, then claimed back through your BAS. Accruals-basis businesses can claim in the first period an invoice is issued, while cash-basis businesses claim when they pay. You need a tax invoice for purchases over $82.50 (ATO). Plan to carry the GST for a while.
• Tax at year end. Stock on hand is counted in your end-of-year stocktake, and a rise in its value is assessable income (ATO). Unsold stock is not a free deduction, so speak to your accountant.
• Cash tied up. Every dollar in a pallet is a dollar not in the bank. If a bad week would leave you short of payroll or rent, the buy is too big.

Check what you are actually buying. Who holds title to the stock? Is any of it subject to a supplier’s retention of title or a secured creditor’s claim? Get the sale terms in writing. For a liquidation purchase, a short call with a lawyer before payment is cheap insurance.

Plan the exit like a lender does

A lender looks at two things on a property-secured loan: the equity, and how the loan gets repaid. The same two questions are the best test of your own stock deal. Before you pay for anything, write down the answers.

1. Who buys it? Existing customers, a trade account, an online channel, a market stall or a bulk sale to another retailer. Name them.
2. At what price? Use the lowest price you would genuinely accept, not the best one you have seen advertised.
3. How quickly? Estimate units per week, then divide into the lot. That is your sell-through time, and your repayments need to fit inside it.
4. What is the fallback? If half the lot does not move, can you sell it in bulk at cost to another trader? A fallback buyer turns a loss into a smaller loss.

If you can answer all four in a few lines, you will also find the loan conversation much easier. For a cash-flow loan, your bank statements show the sales history behind the plan. For a property-secured loan, the written exit is part of the file. Either way, the plan is yours to write, and it takes ten minutes.

When to walk away

A good bargain survives a cold look. Walk away if any of these is true.

• You cannot name your buyers. Hope is not a sell-through plan.
• The discount is thin. If the finance cost, freight and storage eat most of the margin, you are taking risk for no reward.
• The lot is larger than your business can sell. Buying three years of stock to get a volume price is not a saving.
• You would be borrowing to cover other problems. If the business is behind with suppliers or creditors already, new stock is not the fix. Read what to do when you are behind with suppliers and creditors first.
• You cannot inspect or verify it. If you cannot see the goods, confirm the count or confirm the title, wait. The pressure is part of the pitch.
• The repayment depends on a perfect month. A deal that only works on the best case is a bet.

Walking away from a bargain stings for a week. Owning the wrong pallets stings for a year.

Move before the lot is gone

If the numbers hold up, the next step is finding out what you can borrow before you commit, because a firm funding answer is the thing that lets you say yes quickly. The 60-second eligibility check shows whether a cash-flow loan or a property-secured loan fits, makes no credit enquiry and costs nothing. Check your options for the bulk buy, or call 1300 863 711 to talk the timetable through with someone who writes these loans.

Frequently asked questions