Right now, things are looking a little tough for many manufacturing companies. Economic slowdown is having an effect around the world – not just in the United States. But no matter where you supply your goods, it can be difficult to keep your cash flow moving in these times. And, as you know, it can even be hard to keep up a good cash flow system even in the good times. This means that you likely need creative solutions to meet your funding needs. One such solution is invoice factoring.
Invoice manufacturing can solve cash flow problems for your manufacturing company
As you know, cash flow can be a big issue with any company – but especially for a manufacturing company. In order to make your goods, you have to buy raw materials and you have to pay workers to assemble them. You also have overhead costs (facilities, power, equipment, etc.) that you have to pay for. And all of these costs have to be paid before you see a dime from your customers. They pay for a finished product. You lay out the capital to create that product.
This front loading can lead to severe cash flow problems. You need to pay the raw material provider (or your personnel, or the landlord the lease money, or any number of other business expenses) immediately. But you will not be paid for your products for 30 to 60 days. This means that it can be difficult to make the payments you need to for everyday business expenses.
Traditional loan financing may not solve the problem.
Some manufacturing companies turn to traditional loan financing in order to get the capital they need. Unfortunately, if they already have business loans, or if the company is expanding rapidly, some companies may not get the financing they need. A start up manufacturing company may not have the necessary credit history to get a necessary loan. An expanding company may be maxed out and ineligible for financing.
On top of the problem of getting financed, there are interest costs, loan origination fees and other expenses associated with traditional loan financing. And if you need more capital down the road, you have to go through the application process all over again.
Invoice factoring can help your manufacturing company get the capital it needs.
Invoice factoring can help where traditional loan financing fails. Instead of having to try and get a loan, you receive an advance on the money you are owed by your customers. An invoice factoring company (called a factor) takes approved invoices and then gives you an advance on the money – essentially buying the invoices from you. You get the capital you need up front, and the factor collects the invoice and keeps the money.
Fees are easier to pay as well. Most invoice factoring services charge a flat percentage of the invoice, usually between three and five percent of the total, as a fee. A small price to pay for keeping your cash flow liquid and capital available. Additionally, you can usually set up a regular arrangement with the factor so that invoices from certain companies are always factored. This means that your cash flow keeps moving, and you do not have to constantly re-apply for financing.
Benefits of invoice factoring
There are several benefits associated with invoice factoring. The most obvious is that you get capital up front. Instead of having to wait to buy materials, you can do so immediately. You can use the money for anything your business needs – without waiting 30 to 60 days for your customers to fulfill their payment obligations. This leaves you free to concentrate on growing your business.
Another benefit is the fact that in many cases your invoice factoring financing is not listed as debt. So it does not affect your business’s credit score. This means that your business remains in a good place in terms of credit, just in case you do decide you need traditional loan financing down the road.
Invoice factoring can be a great tool to ensure that you always have the ready capital that you need. It keeps your cash flow positive, and can make things easier for your manufacturing company.