How Invoice Factoring Helps Manufacturers
Manufacturing companies are often faced with working capital issues that can restrict their ability to expand and thrive. When a customer does not pay its invoice for 30, 60, or even 90 days, the manufacturer’s cash is simply tied up until that receivable is collected. This type of cash flow dilemma can lead to serious issues if unaddressed that may make it impossible for the manufacturer to grow or even maintain their current capacity. By utilizing the top invoice factoring companies, a manufacturing business gains access to cash as soon as their work has been completed. This allows them to pursue larger job opportunities and avoid operation interruptions due to a lack of capital. Following are just a few examples of how manufacturing factoring can prove extremely useful:
1) Invoice factoring generates immediate cash flow
When a work order has been completed and the customer has taken possession of the finished product, the manufacturer simply submits a copy of the billing paperwork to the factoring company. The factor will then deposit 80%, or more, of the gross receivable value directly into the manufacturer’s bank account. These funds can be used for any business-related purpose such as paying suppliers, covering payroll, or any other expense imaginable. The factor then waits for the customer to remit payment in full (according to the normal payment terms), and as soon as this occurs, all remaining funds are deposited into the manufacturer’s bank account less a small factoring fee. As a result, the manufacturer gains immediate access to the capital that they were previously waiting days, weeks, or months for.
2) Factoring helps expand operations and grow your business
By factoring its receivables, a manufacturer has the ability to bid on, and accept larger jobs without worry about the time it will take to collect on extended payment terms. It’s well known that customers can take 60 days, or longer, to pay their invoices. This waiting game can oftentimes put a manufacturer’s operations on hold until payment is received. With the assistance of an invoice factoring company, the sky is the limit when it comes to accepting larger jobs. As soon as the work has been completed, the manufacturer is able to sell the invoice to the factor and generate working capital to apply toward future jobs. This virtually eliminates the cash crunch associated with typical payment terms and allows the manufacturer to take on jobs that they’d otherwise have to decline.
3) Factoring companies provide access to purchase order financing
Another benefit to working with an invoice factoring company is that they oftentimes will be able to provide assistance with completing purchase orders. When a manufacturer has a significant amount of product to acquire in order to simply complete a work order, this can lead to an entirely different type of working capital constraint. Manufacturing factoring companies are typically able to assist their clients with completing these initial purchase orders to help jumpstart the actual work. Then, once the order has been completed and the customer has taken possession, the factoring company will close out the purchase order and provide factoring assistance as well. The advantage here is two fold and makes growing your manufacturing business a much easier task.
Conclusions
If you are having difficulty obtaining a bank line of credit, or if you are experiencing problems with an existing bank line, factoring may be the perfect alternative for your business. Credit problems such as past bankruptcies, tax liens, or other issues can typically be overlooked in a factoring relationship as credit is simply based upon your customer and not your manufacturing company. Additionally, with invoice factoring, there is no ceiling to how much working capital you can generate as there is with a line of credit – it’s simply all based upon the value of your receivables. If you think factoring may be a good solution for your business, or would like to learn more about it, feel free to contact us or view our manufacturing factoring page for additional information. We’ll be happy to discuss your financial needs and help you determine whether your manufacturing company could benefit from invoice factoring.