Manufacturer Finance - Invoice Factoring Improve Cash Flow

Manufacturer Finance Scenario with Invoice Factoring

When waiting for customers to pay means waiting to take on new business, invoice factoring for manufacturers can speed up cash flow, giving you the working capital you need to grow.

Manufacturer Finance Scenario

Manufacturer Invoice Factoring Scenario

Factoring with us enabled a manufacturer to take advantage of a big growth opportunity.

Our client, a new manufacturer of outdoor furniture was approached by a national big box retailer. The retailer submitted a sizable purchase order of outdoor furniture. In fact, it was the largest purchase order the manufacturer had ever been asked to fill. It was a great opportunity for this young company to grow quickly.

The manufacturer agreed to produce the outdoor furniture requested by the retailer at the price of $300,000. The manufacturer then submitted a billing invoice for that amount to the retailer, who, like other large retailers, typically had a 30-45 day billing cycle.

While the manufacturer was waiting for payment from the large retailer, several other orders came in. The manufacturer needed immediate cash flow to fill the new orders, so they decided to factor the invoice instead of waiting on payment from the big box retailer.

They factored the invoice for a small fee, called a factoring fee* and received an immediate advance** on the invoice amount. The remainder was held in reserve until the retailer paid the invoice, when it, too, was sent to the manufacturer.

Working capital in hand, the manufacturer was able to purchase the inventory, pay operating and payroll costs and fulfill the other new orders that came in.

*Factoring fees as low as 1%
**Advances up to 98%

Benefits of Factoring

Factoring is a Manufacturer Finance Tool that Speeds Up Cash Flow

One of the common cash flow challenges U.S. manufacturers face is not having enough money to fulfill large orders because working capital is tied up in accounts receivable invoices. Invoice factoring, also called receivables financing or A/R factoring, solves this type of cash flow challenge.

Manufacturers factoring invoices can access the money owed them by their customers, without waiting for those customers to pay. Improving cash flow financing accounts receivable invoices is just one of the benefits of this form of manufacturer financing; some of the other benefits include:

Reducing the time and resources a manufacturer needs to spend on invoicing and collection activities
Leveraging faster cash flow to negotiate vendor and supplier discounts
Ability to take on new business more quickly or fulfill bigger orders
Ability to give their customers longer payment terms than competitors

In addition, manufacturers who factor with a non-recourse factoring company also reduce their financial risks, because non-recourse factoring companies assume the credit risk for the invoices they purchase.

Factoring Can Be Ideal for Fast-Growing Manufacturers

“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 factor the invoices.

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

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

—Tom Glazier, VP Operations, My Factoring Brokers

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