The manufacturing industry is a very lucrative sector of the economy, but it can also be a very difficult area for a small business or a startup company. Typically in manufacturing the company will have a significant outlay for both labor as well as material to fill a contract.
To add to the problem, the contract isn’t due for full payment until 30 to 60 days after the delivery of the product or service. This leaves the manufacturer having to cover the cost of doing business, keeping the doors open, buying material, and even paying for labor for potentially weeks to months before payment.
For smaller businesses, this can create significant problems for the company. It can be difficult to make payroll, cover your own bills for material and labor, and maintain the day-to-day business operation. Going for a bank loan isn’t always possible, especially for a startup or a business with less than stellar credit, but invoice factoring for manufacturing can provide just the financial support you need.
The process of invoice factoring for manufacturing is actually a very well established business practice that has been used since the first businesses needed operating capital.
It provides the opportunity for a business in the manufacturing industry to sell some or all of their accounts receivables to a factor, a company who will fund a percentage of the value of the invoices. This percentage will vary but tends to be approximately 80%. The factor then assumes all the back office support including collections and performing all the background checks on your new and potential customers.
You will then simply use the funding to run your business, and when the factor collects the invoice amount the fee will be deducted from the withheld amount, and you will receive the remainder.
Additional Bonuses to Consider
When you are working with a top provider of invoice factoring for manufacturing you have the ability to take on new contracts or to consider new expansion possibilities when they are presented.
With the cash in hand, you can also work with your suppliers to negotiate discounts for timely payment of materials and supplies, helping to reduce your cost of doing business. In some cases, you may even be able to take advantage of cash payment incentives, earning additional discounts and rebates from your suppliers as well.
The advantages of invoice factoring in the manufacturing industry go beyond just having cash on hand. With careful management of these funds, they can be instrumental in helping a business to grow and expand in ways not possible without factoring services.