Invoice Factoring for Manufacturing Companies

Even the most successful manufacturing companies can experience cash flow issues. The high operating costs, purchasing of raw materials, projects that take months to complete, periodic lower returns, and the numerous expenses that are required to keep manufacturing companies operational can be difficult to navigate. 

Invoice financing (accounts receivable factoring) can keep your business afloat during high and low production periods. Factoring services for manufacturing companies allow you to eliminate debt, maintain payroll and continue production without waiting months for your customers to pay.

Manufacturing Factoring vs. Bank Loans

There are multiple ways small business owners and manufacturers can obtain financing, but that is not to say that all financing options are created equal. Bank loans and lines of credit are always the first thought for any business in need of extra capital. However, the eye-popping interest rates, lengthy application and approval processes, and rigid requirements can put these options out of reach for many small businesses. Even fully-established companies with great credit histories can wait months for funding. Invoice factoring is a way to get instant operating capital without creating new debt on your balance sheet or negatively impacting your credit score.

Manufacturing Factoring

Instead of borrowing money, you sell your open accounts receivable (unpaid invoices) to a factoring company in return for a percentage of their value upfront. With manufacturing factoring, you won’t have to wait 60 to 90 days for your clients to pay, either. Instead, you can get up to 95 percent of your total invoice value in advance within as little as 24 hours of being approved, and the factoring company will typically handle the collections process for you.

Top Financial Challenges in the Manufacturing Industry

The manufacturing industry can often be affected by changes in such factors as commodity prices, labor costs, technology, tariffs, and taxes. These factors can impact the profitability of manufacturers and may also affect the ability of companies within the sector to compete effectively. Other financial challenges in the manufacturing industry include:

  • 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.

How to Run a Successful Manufacturing Company

Running a successful manufacturing business requires striking the right balance between the needs of your wholesale or retail buyers and those of the end consumer while still creating a profitable operation. Your long-term success will depend on your ability to establish loyal buyer relationships and the ability to operate with good profit margins. This can be done by making and delivering top-quality products in terms of everything from design to quality control. You need to identify gaps in your production efficiency and implement solutions to minimize waste and improve your work processes. 

Improving the efficiency of your production process includes multiple factors, such as ensuring you hire capable staff, invest in training, properly maintain your equipment, and prioritize communication and effective coordination between team members. Network to build a strong group of contacts that can help you talk to the right people and get your foot into the right doors. Ultimately, all these factors will contribute to ensuring that you are running your business as efficiently as possible, saving money, and creating opportunities for growth.

Financing Options for Manufacturing Companies

  • 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.

Enhancing Cash Flow with Invoice Factoring: A Guide for Manufacturing Success

In the competitive landscape of the manufacturing sector, manufacturing invoice factoring emerges as a cornerstone for sustaining and propelling business growth. By choosing a leading invoice factoring company, businesses can convert active invoices to a factoring entity, thereby unlocking immediate capital. This factoring service is not merely a transaction but a strategic factoring relationship that bolsters business credit and facilitates continuous production cycles. Unlike traditional business loans, invoice factoring for manufacturers is a streamlined factoring process that provides funds within business days, making it a preferable choice for manufacturing companies often faced with the challenge of long payment terms.

Factoring work in the manufacturing sector offers a plethora of benefits. By submitting outstanding invoices to a factoring service, manufacturing factoring companies help transform invoices into cash, offering a lifeline during periods of tight cash flow. This factoring guide explains how using factoring not only aids in covering operating expenses but also supports business growth. Invoice factoring vs. traditional financing showcases factoring’s advantage of not accumulating debt, as the cost of factoring is typically covered by a small factoring fee once the invoice is paid.

Moreover, factoring provides a financial cushion, allowing manufacturing firms to maintain their edge by investing in technology and staff training, crucial for staying competitive. Factoring solutions, including invoice factoring services, are tailored to meet the specific needs of manufacturers, ensuring that companies offer competitive terms to their clients. Through a detailed factoring agreement, manufacturing companies can leverage factoring to help your business grow, turning accounts receivable factoring into a strategic tool for business owners.

Embracing invoice factoring is not just about managing finances; it’s about ensuring your manufacturing business thrives in a dynamic market. Factoring can help your manufacturing company navigate financial complexities with ease, turning challenges into opportunities for expansion and innovation. Learn how invoice factoring can be the key to unlocking your business’s potential and fostering a robust foundation for manufacturing success.

Invoice factoring is an easy and affordable way to access the working capital you need when you need it. Factoring Companies Canada allows you to find and compare factoring services to ensure you are partnering with a company that is best suited to help you. You need a factoring company that understands the complexity of your industry. Browse our Factoring Guide to find a manufacturing factoring company near you.

Want to get started with invoice factoring for your manufacturing company? Request a factoring rate quote today.

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Factoring results estimation is based on the total dollar value of your invoices.
The actual rates may differ.


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Get an instant factoring estimate

Factoring results estimation is based on the total dollar value of your invoices.
The actual rates may differ.


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