Why Your Bank Won’t Finance DTC Inventory

Written By Sherilee Maxcy

Episode Summary

In this episode of the Free to Grow CFO podcast, Jon Blair and Quentin Purtzer discuss the challenges DTC brands face in securing financing for inventory, particularly in the context of traditional banks' reluctance to finance DTC inventory. They explore how Flexport Capital offers unique solutions through real-time visibility of inventory and logistics, enabling brands to finance in-transit inventory and navigate personal liability issues more effectively. The conversation emphasizes the importance of clean accounting and the role of a CFO in helping brands scale successfully, supported by a case study illustrating the benefits of strategic financial planning and collaboration with lenders.

Key Takeaways

  • Collaboration between CFOs and lenders can lead to better financing solutions.

  • Real-time visibility into inventory allows for more aggressive lending terms.

  • Personal liability requirements can be reduced with effective inventory management.

  • Flexport Capital provides a unique inventory financing solution that integrates with logistics.

Transcript

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00:00 Introduction to DTC Financing Challenges

02:11 Understanding Flexport Capital's Unique Offerings

05:15 The Role of Technology in Inventory Financing

10:15 Financing In-Transit Inventory Explained

19:14 Navigating Personal Liability in Lending

23:57 The Importance of Clean Accounting for Financing

29:41 The Need for CFOs in Scaling Brands

33:13 Case Study: Successful Financing and Growth

37:00 Key Takeaways for DTC Founders



Jon Blair (00:01)

Hey everyone, welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a profitable DTC brand. I'm your host, Jon Blair, founder of Free to Grow CFO. We're the go-to outsource finance and accounting firm for eight and nine figure DTC brands. And today, I'm here with my good buddy, Quentin Purtzer senior manager of Flexport Capital. Quentin, what's up, man?

Quentin Purtzer (00:25)

Jon, good to see you again. Thanks for having me on.

Jon Blair (00:28)

Yeah,

I think I was on your podcast, ⁓ what was it? The CFO mindset. You and Nick Kirby, like a couple years ago.

Quentin Purtzer (00:33)

Yeah, that's right. would say a couple of years ago, short lived one of those things coming out of COVID, looking to get into the podcast game like everybody else. I think we did five or six episodes and then unfortunately other things kind of got in the way and shut it down. But yeah, you're able to do that. Join Flexport for multiple webinars. It's been great to have you on.

Jon Blair (00:54)

Yeah, that was a fun one. Honestly, that was one of the first podcasts I was ever on. And so that kind of ⁓ got me into the game. I won't ever forget that. But yeah, so what are we talking about today and why should brand founders listening care? We're talking about why your bank doesn't want to finance DTC inventory. That might sound like a little direct, but like...

If you listen to the show at all or you work with Free to Grow and you've heard me talk about debt oftentimes I'm reminding brands that look in the early stage when you're growing really fast Your bank the commercial banks JP Morgan Chase, Wells Fargo, Bank of America even smaller regional banks They don't like financing DTC inventory why it's seen as risky to them. They like assets like accounts receivable which are more liquid and seen as less risky and so by virtue of the fact that most of the brands we work with don't fit in that credit box, or at least the smaller brands we work with, I've gotten to know the guys at Flexport Capital really well because they have a credit box and a credit product, an inventory financing credit product that has been super game changing for a number of brands that I've worked with over the years. And so before we dive into the nuts and bolts of this, Quentin, can you introduce yourself to the audience and then also just an overview of like kind of Flexport Capital and what you guys are doing over there?

Quentin Purtzer (02:20)

Yeah, definitely. Thanks, Jon. ⁓ Like you mentioned, I'm Quentin Purtzer I'm the senior manager at Flexport Capital. I lead all go-to-market functions for Flexport Capital in terms of new loan originations as well as ongoing client management for large portfolio companies or a large book of business. At Flexport, not only are we a financing, an inventory financing partner, but we're also a logistics company. Flexport was started 10 years ago. ⁓

the goal of making global trade easier for everyone. And so we're a freight forwarder, a customs broker, we have trade advisory specialists. We have warehouses throughout the United States. And then of course we have our capital arm.

Our capital product goes hand in hand with the logistics business of Flexport, where if you're moving a container with Flexport, we have visibility into your commercial invoice for the value of the inventory that's inside of your container. And when those goods, the bills come due for those goods, Flexport Capital will make payments directly to your supplier and extend terms out between 90 and 120 days with Flexport repayment schedules. And so we've been scaling that for.

Really seven years, we had a slowdown during COVID and of course, since 2021 really, we've been scaling the brand and that's when I joined and have been leading the team for a bit over a little more than a year and a half now. yeah, our product is to embed financing within your supply chain setup. The goal is to make this very, very straightforward. Think of it as a buy now, pay later program for your inventory and then you're pairing it with your supply chain partner or your logistics partner to make everything simple and consolidated, under one place.

Thanks.

Jon Blair (03:53)

Yeah, whenever I'm doing content or trainings on lending options for DTC brands, always, ⁓ Flexport Capital is always one I mention in in founder terms, I just call it buy now, pay later, like you mentioned, just because it's easy to conceptualize, right? That like, ⁓ Flexport Capital sends the wire directly to your supplier, right? And then depending on the structure you have set up,

with Flexport Capital, there's a fee that you pay to extend that effectively payable out 90 days, 120 days, whatever it is. I always tell brands, hey, think of it as payment terms for a fee, right? Which works really, really nicely in the early stages when you don't quite have the relationship or the leverage with your supplier to actually have 90 day terms, let alone like, even brands that have really solid relationships, going straight to 90 day terms is really hard and oftentimes unheard of, right? And so like, I wanna talk about why, ⁓ you mentioned the, you know, embedding it within the supply chain, and why is Flexport being a logistics company? Why does that allow you guys to provide unique

lending structures or terms?

Quentin Purtzer (05:18)

Yeah, definitely. Well, we're a freight forwarder, but we're also a tech company. We started in Silicon Valley. Our headquarters are still in San Francisco. We've raised money from significant VCs throughout.

throughout the Bay Area. And we've really invested heavily in the technology side of our logistics platform. And so what that means is that everything that's flowing through Flexport is on our dashboard. We can see when shipments are departing. We can see history with your suppliers. We know who your suppliers are, and we can talk to them live on our platform. And so as companies are using Flexport to import their goods, we are able to aggregate data both on your know average shipping times, the cost of your inventory, your patterns, when are you ordering more inventory, less inventory, and we have this unique perspective that a lot of other lenders don't, where we can actually anticipate when you're going to be ordering more inventory and build customized financing solutions around it. So you can see graphs on our on our dashboard about ordering patterns, landed cost over time, and we can track that and then build things to ensure that we know when your suppliers' invoices are coming due, that we can support, that we can move all of your freight, and then we can land. so having this extra layer of visibility just gives us an upper hand more often than a lot of traditional lenders to build the correct, really the correct credit limit size for these clients, and to make sure that we know ⁓ historical ordering patterns so we try to work with them as best we can to not let them get over their SKUs as well where we know that there's this fine balance to find where we want to help a company grow without allowing them to buy two years of inventory all at once knowing there's a 90 day balloon payment coming up shortly thereafter.

Jon Blair (07:02)

For sure. Well, so okay, so here's what's interesting. Like I've done a bunch of ABL deals over the years and one thing, this is my opinion, right? And so like, even have plenty of friends who run ABL lenders, so if they listen to this, sorry guys, I love you. You have great products for the right season of a business, But what's the reality of ABL lending? Because it's based on the asset value, right? And in the DTC world, primarily inventory.

How, the question is from a risk standpoint on the lender side, on the ABL lender side is like, how do we protect ourselves, right? Well, like how do we know we're lending against an asset that actually exists and has that value? So one of the things that they have to do is they have to do these big long inventory appraisals on the front end. They cost the brand money, they take weeks and weeks. It's a lot of information. You're basically getting this full on audit, right? And they usually do that several times throughout the year to basically go assess that this inventory exists and truly has that cost, right? Whereas Flexport actually is taking custody of the goods and moving the goods and you guys are tracking this information effectively in real time in your platform. That added visibility that you guys have, what does that allow you to do in terms of ⁓ the terms you're able to offer relative to an ABL lender?

Quentin Purtzer (08:29)

Yeah, we have physical possession of the inventory for all of our clients. so what that means is that we're able to get more aggressive on our advance rates. So typically you'll see an ABL, and without quoting specifics, inventory advance rates of somewhere between 50 to 65%. With Flexport just because we have that added, one, the added visibility, and we're lending for a shorter period of time, right, typically 90 days, maybe up to 120 in select circumstances, that we will fund up to 80 in select cases.

up to 100 % of the cost of the inventory.

for our clients. And so for a company that's really moving through inventory and turning it over quickly, if they can sell a majority of those goods within 120 days, this is a very low risk transaction for Flexport Capital. And so functionally, when we hold goods for 60 of the 90 days and then you can follow that up with some sort of security, we can feel really comfortable lending at a much more aggressive rate than an ABL And if we need to divert or exercise like collateral, it's not necessarily the traditional type of ABL where we don't need to foreclose on a business, but it is. We have inventory in our possession, we can use that as needed. So it can be very flexible. We can be much, much more aggressive than a traditional ABL lender. ⁓

Jon Blair (09:49)

Yeah, flexible, living up to the Flexport capital brand name, right? But okay, so, how to throw in that joke. ⁓ I always wanna call you guys FlexCap or FlexCapital because it's just like, it rolls off the tongue. So you brought up something that I think lends well to us segueing into talking about in transit inventory, right? Which is, ⁓ back in the day, so like 10 years ago, I was able to get the...

Quentin Purtzer (09:52)

Yeah, thanks.

Jon Blair (10:15)

traditional ⁓ ABL lenders that like e-commerce, I was able to get them to finance an advance rate on in-transit inventory stuff on the water, on a ship, or even just like in-transit on a train or a truck or whatever. Along comes COVID, that all like dries up.

We were able to get, I was able to negotiate several like one time in transit advances, but they were special over advances that cost a little extra money. ⁓ Side loan agreements, things like that. ⁓ Where I have brought a lot of business to Flexport Capital over the years is like brands that they really, they need to finance what's in transit. They're in a period of building inventory. Talk the audience through.

Quentin Purtzer (11:01)

Yeah.

Jon Blair (11:02)

why you guys are able to finance in transit inventory.

Quentin Purtzer (11:07)

Yeah, let's make sure the audience understands the need for that too and why there is this working capital gap there. And let's use an example of a company that's working to scale up but has limited history with one of their factories somewhere overseas. So they need to use a traditional freight forwarding method, like a full container shipping or a steam ship line to move goods across the world. ⁓ As a company's trying to build inventory and building out a relationship with a supplier. Typically there's a semi-standard set of supplier terms that a company will follow where when they're getting to know a new supplier and you know for an apparel brand for instance they may need to pay a 50 % deposit at the time of cutting a PO in order for that factory to just begin production. You know that takes a handful of months and then the inventory is ready to go at the factory in whatever country they're producing it in.

And then that payment is due right at that time for the remainder of their inventory before the goods even leave the factory in whatever country. From there, they need to have a truck go and pick up the inventory, drive it to the ⁓ origin port, and then of course move it across the world into the US typically, and then into a warehouse, and then they're able to sell it. That gap is the in transit, is really the in transit piece that you're describing. And that can be, you know.

Jon Blair (12:25)

sure.

Quentin Purtzer (12:27)

three to four months depending on what you're doing. And a brand that's trying to scale and it's limited on inventory, they have to make the choice of how they're going to allocate their capital. And having to pay for that inventory so far, like upstream from when they're going to be receiving revenue for it, causes this large working capital gap.

Flexport does we are able to be a natural complement to like bridging that gap and the way that we're able to do it is that all these things can happen through our platform and what I mean by that is if a company is using Flexport as their logistics partner, we have order management systems like booking management systems. We have different products available where you can actually cut that P.O. and track the production of your inventory through our system. And so we can see in real time how your inventory is being produced where it is in the production cycle. And then containers can be booked directly off through our platform. And so we have all this real time upstream visibility into production being. ⁓

like happening in real time. And then when the goods are ready and those bills are due, we've seen them being produced over the last few months. And so we know that we can immediately turn around and finance it because these goods are real. The PO has been cut. The commercial invoice is real. All of the shipping documents are real. So there's just not this.

Jon Blair (13:48)

And you guys are the ones picking it up, right?

Quentin Purtzer (13:49)

And then we go and pick it up, right? Depending on your Inco terms, meaning when you take custody of the goods, ⁓ you tell Flexport to go send a trucker to the factory in whatever country, we pick it up and we handle it from there. And so because we're holding that, we feel comfortable in tandem with a company that has financials that will be able to make it really over the next three to four months and well beyond that we can partner to finance that entire in-transit cycle. And so when goods land, if you're growing fast enough, you can turn around and sell them without needing a secondary financing partner. Or then you can have those goods land and be eligible in a borrowing base or something more traditional like an ABL and pay us off through an ABL. So we really can't complete the working capital cycle financing that in-transit in such a significant way.

Jon Blair (14:39)

Yeah, no, so like let me dig into that further and summarize some of this for everybody. So if a traditional ABL, right, you can't borrow that 50 to 65 % advance rate until that inventory is in your domestic warehouse ready to be fulfilled in finished form, right? Depending on where you're ⁓ exporting the goods from and where you're importing them into in the US.

on the low end, maybe the in transit time is 30 days, on the high end, 60 days, 90 days, 120 days, who's financing that inventory, right? That's in transit if you can't borrow against it ⁓ on your ABL, because it's not eligible until it gets to your domestic warehouse. Well, you either have to finance it through, you basically have to finance it through equity dollars, right?

And so the thing is that, depending on what season your brand is. Now, usually, generally speaking, when your brand gets big enough, right, tens of millions of dollars in revenue and generating sufficient profitability, you may have enough retained earnings, like in your equity cushion, and enough inventory on hand in your domestic warehouse that between the two of those, you can finance in transit. But what we find oftentimes working with brands who are growing super fast, I mean, we've brought more than one brand to Flexport for this exact scenario. This brand is growing so fast, they keep depleting their inventory levels, right? They're selling out time and time again. They're air shipping stuff from China or somewhere overseas, which is adding a huge amount of cost to their cost of goods sold. And they're doing it just to keep up. And they come to Free to Grow CFO and they're like, dude, there's gotta be some way that I can borrow enough money to put ⁓ a container on a ship and save a ton of money on each unit, but like be able to wait the time for that inventory to show up. But what is their challenge? Their challenge is they're growing so fast and it takes so long for a ship to arrive versus an airplane, they have to place quite a big order to get kind of that stream, that flow going. And they don't have enough capital in the bank to place those initial orders to get inventory built. So, will bring them to a lender like Flexport Capital, right? They'll finance the inventory, these container shipments, which Flexport moves for them, that allows them to move into the system and be available in their fulfillment warehouse and either they can just pay off Flexport Capital and sell through it or if they need more funding, they can have a traditional asset-based lender, refi or take out Flexport. And actually you guys, to even work alongside ABLs on an ongoing basis, if it makes sense, correct?

Quentin Purtzer (17:36)

Yeah, yeah, that's right. Because we have that physical possession of the goods and we're financing for such a short amount of time, know, relatively speaking, compared to an ABL who may be working on multiple year, you know, year long draws. We can absolutely work in tandem with a lender, but it really just depends on what a company needs. So we will be, you know, we will talk to a lender and carve out, you know, what they call like an inter-creditor agreement, meaning that when Flexport has the goods, we have priority over.

like an ABL, as soon as they have it, it's in their borrowing base and so they can. So this can be, it's a bit of a clunky solution, so to speak, just because you need to use two lenders to finance the same inventory. But ⁓ yeah, that's exactly right, where we can work with a company in tandem. And then for a lot of cases, and some of the cases that you brought us and the clients, they're growing fast enough and they have a high enough gross margin, where if they finance this larger ⁓ inventory buy, and they have, you

70 to 80 percent gross margins. When that larger container lands 40 days in, they have 50 days to only sell a third of the inventory that they just brought in to pay for the cost of Flexport capital or the cost of the inventory. because we've lended the cost of inventory and then you sell it retail value, of course, and so the spread between that can really recover the debt quickly. And so we enable these brands, even without an ABL, to sell through and then have a lot of landed inventory in the warehouse.

and right-sizer inventory to make sure that they can take advantage of the upside of their efficient marketing or...

Jon Blair (19:14)

For sure, for sure. So there's another thing that I wanna chat about here, which is that asset-based lenders, oftentimes have to require a lot more.

personal liability for Owners, I think this is my opinion. I believe there's a lot of truth to it and it's because since they don't have ongoing visibility of where their collateral is They basically need to put the owner on the hook because they're certifying Usually the owner founder assigning the borrowing base saying I am certifying that this information is true and you can lend me 60 % against this inventory value. So there's a lot of trust there. There's always trust of the founder with every lender, but I know that Flexport has been able to work with founders on personal liability a little bit more. And from my vantage point, it's because you guys already have the collateral, right? You don't need them to certify where the collateral is. Flexport has it. Am I correct in that? what are some of the common ways that you guys can get loans underwritten faster and also have different like owner liability than like a more of a traditional asset baseline.

Quentin Purtzer (20:31)

Yeah, definitely. have real-time visibility into all the inventory that's in our possession within the Flexport system, ⁓ and we have that on a daily basis. So what I mean by that is, when I mentioned earlier that Flexport can go and pick up the inventory from your company's factory, we load that into our platform, and we have the commercial invoice value, and we just upload it into a dashboard that says, you know, Company X now has a million dollars of inventory in Flexport system, and it's at this location.

And then every day we get updated all the way through when those goods are released from Flexport. And so in some instances, that's when goods are cleared from customs or were delivered into another company's ⁓ warehouse. Or if they're in Flexport's warehousing system, then those are just transitioned. And we can see exactly how long goods have been sitting in our warehouse, the composition of the goods, what's ready for sale and what's not. And so with that, understanding of how long inventory has been sitting, how quickly it's moving, and then the historical patterns over the shipment cycles over the years, then of course, like at the warehousing side, the turns. We don't always need to take a personal guarantee or any additional like owner liability with our customers because we can under, we believe that we can underwrite more effectively based on this additional data that we're not actually relying on the owner for.

But we have our own data and our own software engineers that are building this tech to help us make these smarter decisions. And with that, we can really pinpoint, one, challenges within a company. Why are they not moving SKU? Why? Or what are the upcoming ordering plans? And we can build customized lines against that. And when we get to work with a company that specifically, we don't always feel as though we need to work. We need to build in owner's liability into the security pool that we're going to be taking because we have the physical inventory and the data to really track what we're doing and so we can be traditionally more flexible than an ABL partner.

Jon Blair (22:27)

Obviously it's all case by case, right? It depends on the financial profile of the business and a number of other factors, but there's flexibility that there isn't, that there sometimes just is not with other forms of lending. The other thing is, what about underwriting? How hard is it to get underwritten? What does that take?

Quentin Purtzer (22:50)

Yeah, we try to underwrite quickly. And I caveat quickly as related to a traditional ABL where the production of a term sheet should be pretty quick. We like to see two years of financials. We like to see bank statements and forecasts and have a discussion with the owner over what their borrowing plans are and what their goals are. But then we can have a decision ready within 10 business days of receiving a full underwriting package. And then there's not additional underwriting that we need to do after we've heard of

sheet because part of our term sheet stipulates that you're going to be using Flexport for logistic services or you already are and so we have that additional data ready to go and so we don't need to have the inventory exam or appraisal that is traditional with an ABL. I won't say that we can move as quickly as emerging cash advances or revenue-based financing ⁓ options.

That being said, we tend to be a cheaper cost of capital. So we're kind of in that right in the middle type of underwriting, where it's fast but not immediate, but there is not the extra hard burn associated with ⁓ a longer term, like, borrowing-based driven solution.

Jon Blair (23:57)

Okay, so you were mentioning two years of financials. I'm gonna ask you the obligatory question for coming on a Fractional CFO Firms podcast. What are some of the common issues that you guys see with messy accounting and why might that hinder a brand's ability to get a loan with Flexport Capital or any lender for that matter?

Quentin Purtzer (24:00)

Yeah.

Yeah, there's one big challenge, especially when I prefer clients over to you, is the difference between cash and accrual-based accounting. And it's more of a spectrum than saying you're either on cash or accrual-based financials, right? ⁓

Jon Blair (24:24)

Ha ha.

I there's like, there's this I know exactly what you're talking about. There's this hybrid. Like, some cash, some accrual, right? ⁓ I don't, yeah yeah, anyways, go on.

Quentin Purtzer (24:38)

Yeah.

But a great example of that is like freight in on your your P&L Right when you're moving freight, especially for a company that isn't consistently importing inventory or just buying inventory if you can use a if you can buy inventory ⁓ In with like a like, I don't know a few times a year Oftentimes we see that as just hitting the P&L all at once as opposed to like actually accruing for the freight in

Jon Blair (24:48)

Mm-hmm.

Quentin Purtzer (25:09)

in when you're tying that to the revenue that you sell. With that, you get these fluctuating gross margins and fluctuating months of profitability that it doesn't always prove exclude us from doing a deal, but it really slows down the underwriting process to one, try to understand what's happening in those months. Two, if you told us you're on accrual-based accounting, but there's some inconsistencies there. And then it really allows us to take a step deeper into trying to one, understand where this business needs and if it is something that we can potentially take a risk on if they don't have full visibility into ⁓ their accounting statements and anything like that. That would be one, just a kind of structural challenge that we see pretty often with companies that we underwrite.

Jon Blair (25:55)

I see that constantly. do all of our, what we call our free CFO audits. It's part of our sales cycle. We analyze for free a brand's P&L balance sheet. ⁓ And we do it in part to give some tangible value for free to our prospects. But we also do it to understand what's under the hood and make sure that we understand where the brand's currently is and what the financial opportunities are going forward. And I was doing an audit last week and I had a conversation with a brand about the exact thing that you're talking about. what I explained to the founder was like, hey, let me explain to you in kind of like simple terms why it's detrimental for you to be expensing or charging all of your freight in, in the month you get billed for it straight to cost a good sold. Because,

Right now, this particular brand, they're in a season where they really want to understand how hard can they push on ad spend, right? How hard can they push to grow the brand through advertising? And I said, well, because some months you have these big charge-offs to cost a good sold for freight in and other months you don't, I can't tell you how profitable your ad spend was or wasn't in a given month. I can take a step back and maybe look trailing 12 months, but that's not helpful for this month's

profit decisions, right? And so we actually have to try to take a step, like you said, take a step back and figure out what would your margin have been and even estimate what would your margin have been if we had built this cost of goods sold or this freight in into your inventory valuation and charged it off to cost of goods sold as you sold the product. Either way,

we're trying to effectively do the accounting right in hindsight. So let's just figure out the process to get this built, get your freight in built into your inventory valuation when you purchase it or you get billed for it and charge it off to cost a good sold as you sell the product. Because if not, we will be guessing every month as to how profitable you actually are. And when you're trying to scale, you're making a lot of decisions, you're pulling a lot of levers. You wanna know if the levers you pulled this month drove profitability or not.

You don't want to guess about that, right?

Quentin Purtzer (28:11)

And what's so important about that is these scaling brands like unfortunately are going to be strapped for cash You know as you scale like margins aren't they're not sass margins, right? You're a bottom line if you're doing 20 % net margins like that's a fantastic business and so you're needing to continue to make the right decision for your business whether you invest more in inventory more in marketing and that that Balance is it's a choice over where those dollars go if you're not accurately accounting for that and you can't attribute the performance

It's just a huge risk to the business just because unfortunately the margins are thin and these choices really matter. when those choices aren't, they're not made with the right data, it can be extremely detrimental and things can unfortunately go down really quickly. And it's why it's just so important. So that's something that we always look for in a brand. And it's why we like to refer our brands over to you is because we know that they're going to be accounting correctly for.

for everything and we can trust the final we're receiving on the back end.

Jon Blair (29:08)

for sure.

So I'm curious, what is your opinion? And we didn't, I actually, didn't, when we were preparing for this, this ⁓ question about accounting issues, I hadn't even thought of that, it just kinda came up in real time, and this is another question we didn't prepare for, but I'm just curious, what's your opinion on why a brand not only needs clean accounting, but needs a CFO once they hit a certain size to help them with forward-looking financial planning?

Quentin Purtzer (29:41)

Well, the problems that you have when you scale only get more significant as you continue to scale. And so when you're using a traditional accountant or just someone internally without CFO skills or that kind of talent set,

Being able to project out what you need for all four quarters of a year and make sure that you're making strategic decisions in Q1 and Q2 that will enable you to sell in Q3 and Q4 if you're a traditionally seasonal business that is selling for Black Friday, Cyber Monday, it's incredibly important. If you are just making decisions as they come without an overarching plan, which is typically what a CFO or a fractional CFO will do for you is build that plan and allow you to track to it.

You just don't know what you don't know if there's no plan, right? And so you can have these rough guidelines and then any disruptions can just throw your entire year or the future of your business into disarray. Having a CFO who's been through changes in, for me, for changes in supply chains and changes in tariffs, Having someone who's been through that and is able to at least weather or model out different scenarios and talk you through how you're thinking about inventory purchasing, marketing, those different decisions, it's incredibly important, especially in a volatile environment.

Jon Blair (31:05)

Yeah, and I'll even tell a brief story. We have a mutual client who ⁓ took out a Flexport capital line or inventory financing, bought a huge amount of inventory for a holiday in 2023. The ⁓ brand was growing super fast, right? And the founder placed a huge order. But before he did, we went through a financial projection exercise and we said, hey man, this is a massive order.

But even if you only hit half of your sales forecast, we will be able to help you right size the ship over the course of several months. We missed the projection by a lot, still grew the brand sizably, but we missed the projection by a lot. And coming out of the year, we actually sat down with Quentin and the Flexport Capital team and we said, hey, the solution we have in place right now,

we had used the inventory financing product, Flexport also has a term loan product as well. We sat down and we kinda mapped out basically the next six months and said, hey, we need a fresh draw of capital from you guys, but here's how we need it structured. And we sat down, we looked at the projections with them, we got that in place. ⁓ The brand now today, ⁓ almost a year and a half later,

is debt free at the moment. Inventory has largely been right sized. It took 12 months to do it. But with the right partnership between us as their CFOs who could put together scenario projections and actually plan out the capital structure that we needed, we were able to sit down with Quentin and his team, make a case for like why we needed the debt to be structured slightly different. They were able to go to bat for the brand and...

It was a win-win-win all the way around. And so that's like the perfect story about like how the brand can partner with a fractional CFO and a lender to put together a much more sophisticated solution than the brand could have done on their own.

Quentin Purtzer (33:13)

Yeah, and the future of Flexport Capital is really aimed to be doing that. And we have nothing officially to announce today on this podcast, but it is something that we'd like to continue to explore, where this brand you're talking about is using Flexport for their freight forwarding. So the in transit piece is covered. They also use Flexport for warehousing. And so we have all the data that I mentioned earlier, where we can see the inventory on hand, how quickly it's turning, the value of the inventory.

And so, you know, over time we'd like to leverage that data into full comprehensive solutions and whatnot. We were able to use this client as a bit of a test case to really show that with a strong CFO, strong planning and inventory in our possession that we can do incredible things for brands and really match their conversion cycle on the type of financing that they need in a way that is not disruptive to the brand. And it's somewhere that we like to go and something that we're definitely working on.

Jon Blair (34:05)

Well, and I quite frankly, like without us partnering with you guys on they one couldn't have placed the bet that they placed with trying to grow in 2023 so big come out of that bet behind where they thought they were going to be and not just survive, but thrive like in in 2024, they ended up being far more profitable than 2023. 2025 is shaping up to be a great year. We still work with them and

And like I said, they paid all their debt off. Like it was a win across the board. They haven't continued to refinance the debt or take new draws. They borrowed the money for the time they needed it. They got profitable enough to pay that loan back with the profits and everything turned out well in the end. so it's about, but I will say one takeaway is, and I helped lead the charge with this for this particular case, but I was like,

You know, the founder was really scared at first when he came out of, of, you know, for a moment, he's like, man, we really missed our projections. Like it's okay. We look like let's, let's look at the new projections and I can show you we're going to be okay, but let's sit down. The lesson is sit down with your lender and say, Hey, here's where, here's what ended up happening, right? Here's where we're at. Here's what we need to keep moving forward. Here's our plan. We laid it out for them. And that's a much different situation than like.

missing your projections and going man I hope my lender doesn't like send me any emails asking me about this and I have to fess up to this you know what I mean

Quentin Purtzer (35:37)

Yeah, no kidding, and I should have brought that up as another benefit of a fractional CFO like you all is that you get to advocate for your clients and you get to build this and you get to have multiple test cases, you for better or worse over what the brands that you're working with need. So you're able to lay the case out to all parties involved and make everyone comfortable. It's almost as an intermediary, right, between a lender and a founder for, you know.

you are the expert, here's the cash flow of projections, and then it's able to be vetted. I don't want to say in a more real way than something that's founder led, but it's just, it's a second set of eyes that's always, always beneficial for a lender to see because they know that they can trust us and there's history there where we don't know every, every founder, especially at the onset of relationships. And so that, that built up history can make a huge difference in advocating to get what your founder needs, as well as just to build out more favorable terms and, and, build out different options for your founders.

Jon Blair (36:35)

For sure, for sure. So before we land the plane here, I'm curious, we have a bunch of founders who are gonna be listening to this episode. What are some of the key takeaways or maybe key indicators that you wanna leave founders with that might be, how do you put on a founder who's listening to this radar?

hey, Flexport Capital might be, this might be the right time for Flexport Capital. What are some of the things they should look out for and take away from our discussion today?

Quentin Purtzer (37:08)

Yeah, there's a few of them. One is that if you're importing, consider Flexport as a potential partner for you. Whether Flexport Capital works or not, we can do literally anything that you need in your supply chain to benefit your business and give you the visibility that you need with suppliers or where your inventory is throughout the world. For Flexport Capital specifically, there's a few things that you should think about and if you want to reach out please do. The first is when you're negotiating with suppliers and they are not budgeting on terms, reach out to Flexport Capital because we can give you those terms you know for a fee but it's something that we can partner with. Two, if you're struggling to have to keep inventory in stock and you know that if you buy more inventory you can grow more, reach out to us. Or have Jon reach out on your behalf.

We can help you place those large orders and have the confidence that when your balance payments come up, once that inventory is ready, that we can give you 90 day terms on top of it.

And get you to a point where you're actually ahead on your inventory, you're not always trying to catch up and stay in stock. And then three, if you're looking for additional availability and you're a brand that has been able to ⁓ open a line of credit or an ABL with a bank or a private credit institution, and there's just a little bit of a gap that you need to fill, meaning the in-transit piece, or if you need to build a little bit more inventory, then your line can support getting ready for your peak season reach out, we very likely already know that ABL, we know the folks there. And we can work in tandem to give you a little bit more availability to make sure that you've right-sized your line. So keep us in mind really ⁓ for anything tied in transit, ⁓ inventory and financing.

Jon Blair (38:57)

Those are three great triggers to look out for. I was smiling while you were saying we likely already know your ABL lender, because I was thinking to myself, I was like a funny ⁓ kind of like LinkedIn post headline would be like, your lenders already all know each other and they're all talking about you behind your back. ⁓ it's like, I'm being a little facetious there, right? But like, everyone knows each other. It's a small space, especially in consumer goods, and I would say even furthermore, lenders who like or are comfortable with e-commerce. And the reason I'm bringing that up is because like you don't want to burn a lender. You want to have good relationships because guess what? Not only will you burn the bridge with that lender, but they all know each other and they and you don't want word to get around that you're a brand that is like a problem to work with. But keep in mind, lenders are willing to look at working alongside each other. So don't be afraid either, right? Like everyone's looking for a win, win, win. Obviously you may not have the financials or the situation that would allow two lenders to come in at the same time, but like don't be afraid to ask.

Quentin Purtzer (40:07)

Yeah, definitely. And usually it's just about making sure that you're very specific over how you want to use a lender. If you want to use Flexport Capital for Intransit and another ABL for landed goods, that can work all the time. in the consumer goods space, especially on the DTC side, there's so few lenders that are truly comfortable with lending on inventory only, without AR, that you do see the same players over and over again, which is a great thing. It builds a strong community and it enables brands to build the right solution for what they need to give them the cash flow to grow and really take that worry out of the equation at least, know, for the short term here. And then once the banks come in, can always be a different view and usually that's when we try to partner more selectively. yeah, it's a great community and everyone's really supportive and trying to help brands grow.

Jon Blair (41:02)

So before we end here, where can people find more information about you and or Flexport Capital?

Quentin Purtzer (41:09)

Yeah, Flexport.com has got everything on there. It's got our 20 different services that we provide, and Flexport.com/capital is our website. And then of course, my name's Quentin Purtzer I'm on LinkedIn. ⁓ I'm all over the place, and I can always send over my contact information. ⁓ My team is spread out all throughout North America. We're very happy to have conversations with anyone who'd like to chat, figure out what the best solution is for them. And of course, ⁓ Jon and I are talking all the time. So you know. If you're a brand that is interested, make sure that you reach out to one of us and we'll get in touch.

Jon Blair (41:41)

For sure, definitely reach out to Quentin if you're interested in what we've talked about here. And don't forget, if you want helpful tips on scaling a profit-focused DTC brand, consider following me, Jon Blair, on LinkedIn. And if you're interested in learning more about how Free to Grow's DTC accountants and fractional CFOs can help your brand scale, check us out at FreeToGrowCFO.com. And until next time, scale on. Thanks, Quentin.

Quentin Purtzer (42:05)

Thanks, Jon.

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