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# How to Finance a Working Capital Gap Between Inventory and Receivables
- URL: https://blog.financely.io/finance-working-capital-gap-inventory-receivables/
- Published: 2026-09-03T16:52:53.000Z
- Updated: 2026-09-03T16:52:53.000Z
- Description: How companies finance the cash conversion cycle using inventory advances, receivables lending, borrowing bases and controlled collections.
- Author: Financely Debt Advisors
- Tags: Working Capital, Asset Based Lending, trade finance, #Import 2026-09-03 16:43

## The Cash Conversion Cycle Creates the Financing Need

Many operating companies pay suppliers weeks or months before customers pay invoices. Cash is tied up first in inventory and then in receivables.

A [facility against inventory and receivables](https://www.financely.io/trade-finance-facility-against-inventory-and-receivables?ref=blog.financely.io) can finance the asset as it moves through the operating cycle rather than relying solely on unsecured corporate credit.

The lender underwrites how quickly each asset converts into the next form of collateral.

## Inventory Advance Rates Reflect Liquidation Risk

Raw materials, work-in-process and finished goods can receive different advance rates. Commodity-like inventory with a broad resale market is easier to finance than highly customized stock.

Location, title, insurance, obsolescence and prior liens affect eligibility.

## Receivables Usually Support Higher Advance Rates

Once goods are sold and an invoice is owed by a creditworthy customer, the collateral can become more transparent.

[Receivables lending](https://www.financely.io/receivables-lending-for-growing-companies?ref=blog.financely.io) depends on obligor quality, aging, disputes, dilution, concentration and assignment rights.

Eligible receivables can therefore provide the principal liquidity engine for growing B2B companies.

## Borrowing Bases Connect Both Asset Classes

A [borrowing base](https://www.financely.io/borrowing-base-financing-for-physical-commodity-traders?ref=blog.financely.io) can calculate availability from eligible inventory plus eligible receivables, less reserves and existing usage.

As inventory is sold, availability shifts from one category to another rather than disappearing.

This creates a revolving structure aligned with working-capital turnover.

## Cash Dominion Completes the Cycle

Collections are often directed into a controlled account where lender exposure is repaid before new availability is released.

This allows the same facility to recycle continuously through purchases, sales and collections.

## Seasonality Needs Additional Headroom

Businesses with seasonal inventory builds can require peak borrowing well above average usage. The committed facility should be sized against peak eligible assets rather than annual averages.

Otherwise the company can run out of liquidity during its strongest sales season.

## Customer Concentration Can Constrain Availability

A company may have strong total receivables but limited borrowing capacity if one customer represents a large share of the pool.

Concentration caps protect the lender against a single obligor default.

## The Best Facility Follows the Asset

Working-capital finance is most efficient when the debt grows and declines with current assets rather than forcing the company into fixed amortization unrelated to the cash cycle.

That alignment can increase liquidity without requiring the borrower to maintain unnecessary permanent debt.