Alternative Financing Methods for Manufacturers
Manufacturing is an industry that faces a constant need for working capital. In this Article, Megan Woolhouse of The Boston Globe points out that,
“Since the sector hit bottom in early 2010, the nation has added nearly 900,000 manufacturing jobs, according to the Labor Department.”
These jobs represent real growth that translates into more and larger orders. So while companies can spend hundreds of thousands of dollars creating products for their customers, waiting 30 to 60 days for payment can prevent those businesses from accepting additional orders. Furthermore, manufacturers have salaries to pay, materials to purchase, overhead expenses, and other operating costs that can add up considerably. When a majority of their capital is tied up in the most recent work order, this can lead to unnecessary stress that takes focus away from growing the business. The good news is that there are alternative financing solutions such as invoice factoring and purchase order financing to help alleviate these financial burdens.
When is factoring the right alternative financing solution?
While traditional lines of credit are typically viewed as the “holy grail” in business financing, the problem is that they are not always available. When a manufacturer has not been in business long enough, has past credit issues, or simply does not portray the “ideal” financial situation that a bank would prefer, these lines of credit may be out of their reach. This is an excellent time to consider factoring. Due to the fact that credit analysis is performed upon the customer, not the manufacturing company, organizations with poor or limited credit history are excellent candidates for invoice factoring.
Manufacturer factoring is available to businesses in virtually every stage, even start-ups. As long as the company is currently fulfilling orders for customers, manufacturers can factor their receivables. However, if the customer is willing to pay upon delivery, invoice factoring may not be necessary. As a result, it is not advisable to factor all your receivables, but typically only those that are paid on terms (i.e 30 days, 45 days, etc.).
Visit our Manufacturing Factoring page to learn more about this process and how it works.
When is purchase order financing the better alternative financing solution?
Purchase order financing is best utilized when a manufacturer (start-ups included) receives an order for $10,000 or more, but does not have the capital to purchase the materials required to fulfill that order. Rather than turning down the customer, the manufacturing company has the ability to accept these larger jobs and simply finance the acquisition of the materials. Upon final completion of the order and delivery to the customer, the manufacturer will also have the option to factor the invoice to generate additional working capital. However, this is not required in order to obtain purchase order financing.
For additional information about this alternative financing solution, please visit our Purchase Order Financing page.
Need help determining which alternative financing method is right for you?
Feel free to give us a call at (888) 515-7501 or Contact Us through the website. We’ll be happy to have a conversation regarding your current situation and capital needs. Even if invoice factoring or purchase order financing are not the right fit for your business, we may be able to put you in touch with another financial organization that does provide the ideal solution for your needs.