Thursday, May 30, 2024

Factoring Financing For Manufacturing Businesses

On the surface, a business in the manufacturing industry is relatively clear-cut with a simple purpose. To manufacture goods, and to make sure that they arrive in a timely fashion to the clients. It’s straightforward enough, and it’s a very rewarding and satisfying business for anyone with the passion, dedication and capital to make things happen. However, there are certain unforeseeable issues that come with a manufacturing business that some people just might not be prepared for.

One detail in particular involves sending out invoices with reasonable payment timeframes, with deadlines that reach upwards of three months in some cases. While this is completely reasonable, sometimes the business relies on people who pay a little earlier than right before the deadline. Unfortunately, as luck would have it, there are businesses that end up stagnating because of this particular issue. While there are certain solutions such as taking out a loan, some companies have opted for manufacturing financing at Fundbox, for example, and here’s why.

Taking care of the issue at its source

What is the biggest issue when it comes to manufacturing businesses that suffer from stagnation? The answer is simple – cash flow. While this tends to be the most common answer with most other businesses, cash flow in particular is what hits manufacturing companies the hardest. They can have plenty of clients and they can do their jobs as competently as you can possibly imagine, but they’re still working within inflexible timeframes. For all the clients they have, it can still take upwards of three months for the money to be received in their hands. That is a lot of time in the manufacturing industry, and when they receive the money they end up using it on necessities. There’s absolutely no room for creativity because they’re forced to work according to the restrictions imposed by their cash flow.

When it comes to manufacturing finance, factoring is the name of the game

Now that we understand the core of why these types of businesses stagnate in the first place, it becomes easier to understand what needs to be done to fix it. A quicker cash flow would be achieved by customers paying earlier than the deadline, unfortunately that would only really work in a perfect world. In order to solve this, companies can turn to invoice factoring. This means that companies will be able to get their money quicker with very little risk involved. Factoring is a solution that provides companies with a real fighting chance.

How does it speed up the cash flow of manufacturing businesses?

Because invoices lie at the heart of slow cash flow, many agencies have begun to take advantage by offering to buy these unpaid invoices from companies. After purchasing these invoices, they take the responsibility for collecting the money from the client’s customers. Of course, they will be receiving a percentage of the amount that the client would normally be able to receive, but this comes with a desired benefit. Because the agencies have already paid for the invoice, that means the client receives their money long before the intended deadline. This can have huge ramifications for the future of any business in the manufacturing industry – and all of them are positive.

Just about every business owner knows just where they can take their company given the right kind of funding. Unfortunately, they’re unable to take these opportunities because cash flow is a problem. Because of manufacturing financing and factoring, suddenly this is not a problem anymore. Business owners will now have enough money to actually give their company that much needed push so that it can truly succeed in the industry. Have you always wanted to start a big campaign so that you can expose your business to the manufacturing world? Thanks to invoice factoring, you have the means to do so without having to worry about paying back a loan.

What exactly are the risks that this can entail?

One of the ways that makes invoice factoring unique when compared to many other solutions, is that the lending agency puts itself in about as much risk if not more so than your own business. Whereas you might have had to risk the entire company in order to take a loan, an invoice factoring agency is actually likely to put itself at more risk in the long run. After all, just because a customer is being sent an invoice and being directed to pay within a certain timeframe, it doesn’t mean that they are absolutely guaranteed to pay. As a matter of fact, they might just not pay, which can culminate in two outcomes depending on your deal with the factoring agency.

If your deal includes a non-recourse factor (more likely if your debtors have a habit of paying), then in the event that your customer decides not to pay, the agency will have to shoulder the fees. This isn’t something that the agency takes lightly, which is why businesses tend to go through credit checks before they agree to a non-recourse deal. On the other hand, a recourse factor means that you will be the one to shoulder the fees of a non-paying customer – though you already received your money. This makes it a little easier to handle, so overall the risks involved aren’t great when all the advantages are considered.

In conclusion, a manufacturing business has much to gain when it comes to financing through the use of invoice factoring. While there is always the risk of customers not paying, this is often a rare occurrence in the manufacturing industry. It’s definitely a far-cry from loans where you will possibly have to put something very significant up for collateral. There’s no reason to put so much at risk when you still have invoice factoring as a solution. When you consider all of the opportunities that you will be able to take advantage of, invoice factoring just might be what your company needs to truly succeed.


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