Enabled by credit insurance, the rising demand for inventory finance is reshaping how lenders, insurers and corporates manage working capital. Delivering it at scale, however, depends on clear legal, operational and risk frameworks.
Once a niche solution used selectively for specific commodities or regions, inventory finance has now become a central component of working capital strategy. No longer confined to the fringes of structured trade, it is gaining traction across an increasingly diverse range of sectors and supply chains.
Cruz González Agrelo, global head of supply chain and receivables at Willis, a WTW business, affirms: “We do see a clear trend, particularly now that both lenders and borrowers are more familiar with the structures and there’s greater transparency to make deals viable.”
Several forces are behind this shift, chief among them the need for greater supply chain resilience. Disruptions over the past five years have exposed the limits of just-in-time models, prompting companies to pre-position critical components, ranging from semiconductors to packaging, across multiple markets. But holding stock ties up capital and places added strain on already stretched balance sheets.
“Warehouse financing has become crucial,” underlines González Agrelo. “And from a balance sheet point of view, it’s a working capital solution that CFOs are increasingly interested in. It allows for off-balance sheet treatment in many cases, and that’s a key attraction.”
Consumer expectations have also shifted. The so-called “Amazon effect” has spread to B2B supply chains, pushing businesses to guarantee rapid delivery. Many were already pre-positioning inventory for resilience, but now speed and availability are just as important. This often means holding stock in decentralised warehouses across multiple regions, tying up capital well before sales and increasing the need for flexible financing solutions.
More complexity, more optionality
Meeting that need requires structures that differ markedly from standard trade finance. Inventory finance, for instance, operates on a pre-sale basis, introducing a distinct credit profile and a different set of risks.
“You’re financing goods held as stock, before invoicing and title transfer,” notes González Agrelo. “So there is no receivable at inception, and you need alternative documentation to create an enforceable payment obligation.”
This changes the nature of the risk. Exposure windows are longer, and the legal and operational flow of title, warehouse control and drawdown terms add complexity. Structuring must address not just the buyer’s ability to pay, but also when and how that obligation becomes enforceable.
The result is a wide range of structures available on the market. Some deals begin with corporate receivables teams, others with lenders. Banks may partner with fintechs, warehouse providers or funds, depending on risk appetite. Each structure raises specific legal and operational questions, particularly regarding the definition and transfer of payment obligations.
“While there’s no single model, if you want the transaction to be insurable, you need to be very clear on who holds the credit rights, when they hold it, and under which legal jurisdiction,” explains González Agrelo. “That’s what makes it viable.”
Insurance unlocks scale
Once structured correctly, credit insurance becomes the vital enabler that makes inventory finance both scalable and capital-efficient. For banks, it reduces capital intensity, strengthens internal deal economics, and increases flexibility when serving core clients.
“If a bank can reduce its risk-weighted assets by insuring the payment obligation through a highly rated insurer, it frees up capacity to do more deals with that client,” says González Agrelo. “It also improves the return on risk-weighted assets, which makes the deal easier to sell internally.”
With rising pressure to deepen relationships with core clients without breaching internal limits, banks are increasingly turning to credit insurance as a strategic enabler. It allows them to extend more support to familiar counterparties without adding undue risk.
“In many cases, the bank already trusts the client,” she adds. “But they want to do more with them, and the insurance allows them to lend more without triggering concentration issues. It also helps avoid losing that client to a competitor.”
Because insurers don’t always interact directly with the corporate borrower, many deals are structured behind the scenes. What matters is that the terms pass muster with internal credit committees, and that requires more than just a good client name.
“It’s about pricing correctly, using a well-rated insurer, and presenting a strong internal case,” says González Agrelo. “When that’s in place, insurance is a huge asset for the bank.”
The underwriting learning curve
This growing reliance on credit insurance has led to a steep learning curve for the insurance market. Historically, many underwriters were unfamiliar with inventory finance structures and cautious about their complexity. But today, that’s changed.
“There is now a robust panel of insurers who understand the product, and it’s becoming more competitive,” González Agrelo notes.
The shift has been driven by improved information sharing. As banks began offering more profound insights into the legal and structural aspects of transactions, underwriting confidence grew.
“Previously, lenders were just sharing a name and asking for a limit,” González Agrelo adds. “Now they’re walking through the whole legal and operational structure, providing documentation, and clearly defining the moment when the insurer is on risk.”
That definition is crucial. In many inventory finance deals, the credit risk only becomes active once the buyer issues an irrevocable payment obligation. Until then, the insurer has no exposure, so the structure must be built around clear, enforceable risk transfer points.
Making it insurable
So what makes a structure insurable? For González Agrelo, it starts with clarity around the payment obligation.
“You need a valid and enforceable irrevocable payment obligation, usually backed by a legal opinion,” she explains. “That obligation substitutes for the receivable or letter of credit you’d see in a traditional deal.”
Equally important is how the deal handles title transfer, risk allocation and the timing of delivery and invoicing. The inventory holding period must suit the nature of the goods, long enough to be practical, but not so extended that it heightens risk. Warehouse control is also key, especially where specialist storage is needed, with insurers expecting experienced providers to be in place.
The goods must be central to the buyer’s core business, with a clear rationale for financing them in advance. Once those foundations are in place, the next question is which risks credit insurers are generally prepared to cover and where they tend to draw the line.
Structuring around risk boundaries
To make inventory finance insurable, structures must isolate pure credit risk, such as non-payment due to insolvency, while ringfencing operational exposures. Insurers generally do not cover disputes over undrawn goods, warehouse losses or performance failures.
“You have to isolate the buyer payment risk,” emphasises González Agrelo. “If the bank structures it so that it is not legally bound to the quality or performance of the goods, then the insurer can underwrite it. If not, it falls apart.”
Managing this ‘grey zone’ requires clear documentation, risk transfer clauses and inter-policy alignment.
When structured correctly, insurers can underwrite with confidence.
Towards a more resilient system
Inventory finance represents more than a tactical shift. It signals more profound changes in how global trade and working capital are structured. As banks, insurers and intermediaries like WTW align more closely on legal, operational and risk parameters, inventory finance is becoming not just viable, but scalable.
“We’re seeing the evolution of what was once a niche solution into a mainstream and highly effective tool,” concludes González Agrelo. “If we get it right in inventory finance, we can build a more resilient and sustainable ecosystem that supports other structures too.”
