Factoring Manufacturing Company Invoices and Earnings Statements
Manufacturers who sell on terms to customers or who sell via third party platforms (like Amazon, Zulily, Wayfair, Walmart, etc.) can factor invoices or earnings statements and get immediate access to working capital they might otherwise have to wait 30 – 60 – 90 days – or even longer – to receive. Here’s how it works:
When you factor a manufacturing company invoice or earnings statement, you’ll gain immediate access to an advance. This advance is usually expressed as a percentage (such as 98%) of the face value of the invoice (or earnings statement). Any remainder (sometimes called a “holdback”) is then placed in reserve against future customer payment of the invoice. The small fee that the manufacturing company pays for this type of business financing is called a factoring fee. A factoring fee could be as low as 1%, but often ranges from 1-10%.
As an example, let’s say that you are a manufacturer, that you have completed and order and generated a customer billing in the amount of $25,000. Instead of waiting waiting weeks – or months – for your customer to pay, you want to gain immediate access to this working capital.
Assuming a factoring fee of 1%, and an advance rate of 98%, here’s how it would work:
Overview |
|
Day 1 |
Generate a $25,000 client invoice and factor it |
– Same Day |
Receive an advance of $24,500 (98% advance) |
|
Factoring company earns $250 (1% factoring fee) |
Day 30+ |
Your company receives the $250 reserve amount after the invoice is paid |