Invoice Factoring for Manufacturing Companies

Problems Effectively Managing Inventory: Too much inventory on-hand due to poor stock forecasting and demand forecasting can spell trouble for your finances. Idle inventory represents cash that‘s just sitting on a shelf. It inevitably ties up your money and increases the risk that your stock becomes obsolete. However, not holding enough stock can result in shortages and missed sales opportunities. As a manufacturer, you need to ensure that you have just enough stock that your manufacturing process isn’t held up and your stock moves quickly but isn’t left to gather dust or go to waste.

Extending Too Much Credit to Customers: It is extremely common for manufacturers to extend longer payment terms to their customers, and while it may improve customer satisfaction, it can be disastrous for your cash flow. Just because your invoices are taking longer to be paid doesn’t mean your expenses stop accumulating, and before you know it, you’ve dug yourself into a financial hole that seems too deep to get out of. 

Capital Equipment: Manufacturers are constantly faced with the challenge of keeping up with current technology. If they do not keep pace with changes in technology, they risk becoming obsolete and inefficient. From equipment to robotics software, these items substantially affect a manufacturing business’s performance. For example, manufacturing companies are increasingly leveraging the Internet of things (IoT) to achieve a variety of objectives, including cost reduction, increased productivity, enhanced safety, meeting regulatory compliance requirements, and product development. If manufacturers buy new equipment before it becomes outdated, it may prove difficult (and expensive) to install, operate, manage and maintain. Furthermore, it may be underutilized. Manufacturers must ensure they have the right equipment for today’s needs and tomorrow’s demands.

Cash Flow: Manufacturing companies traditionally have very low gross margins and profits. In addition, they often have long lead times and shipping times for parts and products, resulting in large amounts of accounts receivable and accounts payable. If customers are slow to pay their bills, this can quickly present challenges for cash flow. If a product doesn’t get finished correctly, there may be claims against the company, and collections can take longer. Companies should consider taking deposits from their customers upfront to cover hard expenses. They should also aggressively collect outstanding invoices and make sure that customers receive them promptly, acknowledge receipt of outstanding ones, and pay within agreed-upon payment terms.

Equipment Finance – Equipment financing is a loan or lease that is used to obtain physical assets, such as equipment, for your business. Once your company is approved, you will repay the loan in monthly installments for an agreed-upon term. Manufacturing companies may use the funds for machinery or vehicles for their business, but it can typically be used for any tangible asset except real estate.

Merchant Cash Advance – Also known as a business cash advance, MCAs have increased in popularity. Manufacturers often use this form of financing to obtain funding because it is faster than a bank loan with fewer requirements. You repay the finance provider using a percentage of your sales plus a fee. While it may be convenient, this is also a relatively expensive form of financing.

Supplier Financing – This is a form of supply chain financing that works by allowing manufacturing companies to get a financing company to purchase the raw materials you need on your behalf. The financing company will then extend credit to you, and they will resell the products to your business. You typically have up to 90 days to pay the invoice, and instead of creating debt, supplier financing creates a trade payable.

Asset-Based Lending – ABL is a form of financing in which manufacturing companies can leverage their business assets as collateral (equipment, real estate, inventory, invoices, and other assets) in return for funding.

Inventory financing – Inventory financing allows manufacturing companies to leverage their excess inventory as collateral for funding. It will give your business the money you need to cover your expenses but is generally quite costly compared to other forms of financing and should only be considered when all other funding alternatives have been exhausted.

Invoice factoring – Invoice factoring is a fast, convenient financing solution that allows businesses to sell their outstanding invoices to a third party (factoring company) for a percentage of their value upfront – usually between 85% and 95%. The factoring company then collects on the invoices and, once all of your customers have paid, will reimburse your company the remaining balance (less a small factoring fee). This is a flexible financing solution that allows you to factor as few or as many invoices as you need to. Instead of waiting for your customers to pay you, you will have immediate cash on hand to cover your working expenses. This debt-free financing solution is available to almost any business with credit-worthy clients.