Financing for Manufacturers – Improve Cash Flow by Factoring Invoices

Invoice factoring is a tool that can be used for cash flow financing for manufacturers to quickly speed up cash flow. This manufacturing financing scenario explains how.  

Invoice factoring, also called receivables financing or A/R factoring, solves cash flow challenges. It enables companies that invoice customers on terms to gain immediate access to the money tied up in receivables without waiting for customers to pay.

Find out more about supply chain invoice factoring, or read the manufacturer financing scenario below and find out how this centuries-old B2B financing option expedites cash flow by unlocking the money represented in unpaid customer invoices, without forcing customers to pay more quickly.

Often, open invoices are one of the largest tangible assets on a company’s balance sheet. Rather than waiting 30 days or longer to be paid, it makes sense to sell the invoices.

This type of financing won’t show up as additional debt on a company’s balance sheet, so companies maintain their flexibility for obtaining other types of long-term financing.

Factoring can be a great option for fast growing and seasonal companies.

Manufacturer financing scenario demonstrates how factoring speeds up cash flow

How Invoice Factoring Solves the Problem of Cash Flow Financing for Manufacturers

A manufacturer of outdoor furniture is approached by a large big box retailer. The retailer submits a large purchase order of outdoor furniture. In fact, it’s the largest purchase order the manufacturer has ever been asked to fill.

What an opportunity!

The manufacturer agrees to produce the outdoor furniture requested by the retailer and does so for the price of $80,000. The manufacturer then submits a billing invoice for that amount to the retailer. The billing cycles for most large companies like the large retailer in this example, are 30 to 45 days, and sometimes even longer.

While the manufacturer is waiting for payment from the large retailer, several other orders come in. The manufacturer needs immediate cash flow to fill the new orders.

The manufacturer chooses to factor – or sell – the invoice to invoice factoring company.

The factoring company buys the invoice and the manufacturing company receives funding (called an advance) within 1-2 business days (or even faster), after factoring the invoice. The advance amount offered by factoring companies varies based on the credit worthiness of the customer, not the manufacturer. Factoring advances often range from 85% to as high as 98% (or even higher).

The cost of financing for manufacturers using invoice factoring is called a factoring fee. This fee may range from 1% to 10%, depending on the factoring company’s terms. Most of the factoring companies we refer to have factoring fees ranging from 1-6%.

Once the customer – the big box retailer – has remitted payment for the full amount of the invoice, any amount held in reserve is also returned to the manufacturer.

With the ability to access the money their customer owes them right away, the manufacturer is able to purchase the inventory, pay operating and payroll costs and fulfill the other new orders that came in.

By speeding up cash flow, manufacturers can grow their business more quickly and take advantage of new business opportunities, instead of waiting for working capital to come in weeks – and sometimes months – after customer invoices are generated.

How much working capital could you unlock by factoring invoices?

Financing for Manufacturers: Why Work with Us?

Use our online invoice factoring opportunity cost calculator to see how much working capital is tied up in your accounts receivable invoices – money you could unlock to grow your manufacturing business faster.

Why work with us?  Working with us doesn’t cost your company anything. We work with some of the best invoice factoring companies and taking the time to source the right fit could magnify the benefits of factoring invoices to speed up cash flow. The factoring companies we refer to offer:

• Factoring rates from 1-6%
• Advances on factored invoices from 85-98% – or even more
• No long term factoring contracts or hidden penalties
• No monthly minimums
• Prompt, professional customer service and dedicated account managers
• Same/next business day funding for factored invoices
• No application fees, credit check or due diligence fees
• No funding or notification fees
• No hidden fees to surprise you
• Retain control of invoicing your customers or let the factoring company do the work for you – the choice is yours!

Non-recourse factoring financing for manufacturers offers additional benefits

Access to Working Capital is Just One Benefit of Factoring Invoices 

Improving cash flow by financing accounts receivable invoices is just one of the benefits of this form of manufacturer financing.

Organizations that factor their customer invoices with a non-recourse factoring company also reduce their financial risks, because non-recourse factors assume the credit risk for the invoices they purchase. In this way, factoring also helps to reduce or eliminate bad debt for a manufacturer that finances receivables with a non-recourse factor.

Find out more about Recourse vs. nonrecourse financing or use the quick quote form below to request a free, no-obligation quote to see if financing for manufacturers using invoice factoring could help your business. You could go from approval to your first funding in 3-5 business days, and get immediate access to the money you need to grow and operate your business.