Increasing Efficiencies to Generate Financing
for Manufacturing Companies

Are you steadily growing, but constantly creeping close to using all your available lines of credit? Do you often go back to your private sources of finance to help in a cash crisis?

Imagine this scenario:

A product manufacturer has one successful production facility, supplying several regional warehouse/distribution centers. The company is set in a profitable geographic region. Business is steadily growing and it’s time to make some changes to optimize profits. You know you are ready to grow, but your manufacturing financing comes from private equity, or traditional bank loans.

You are in the business of distribution, which makes you the master of time management! Not only that, you are more than likely able to juggle the many unpredictable elements that go into making your company a success. 

What is involved, in simple terms?  

• It’s all about consumer demand

• Holding the right amount of inventory

• Anticipating of the needs of your customers

Time must be carefully managed to make sure inventory arrives exactly when it is needed, in the correct amounts! But your customers are not necessarily so precise when it comes to paying their invoices, many government and commercial customers asking for 30 to 60 days to make payment on an invoice.

We have written previously about the importance of creating a cash flow forecast, and regularly checking your cash flow. Forecasting as accurately as possible makes developing and running a business much easier. It is, however, hard to prepare a cash flow forecast when your cash flow is not predictable.  

The reasons behind your unpredictable cash flow need to be identified in order to find a workable solution.   

• Isolate your unpredictable cash flow

• Identify constant cash flow

There are many reasons for unpredictable cash flow, and once you are aware in advance that you are entering a period of slow payment, you can work out a method to rectify the situation. Many periods of uncertainty are particularly relevant to certain markets.  

So how can invoice factoring accounts receivables really help manufacturers? Why is it a great solution?  

The obvious answer is that manufacturers require consistent working capital. This is not always possible with late payers, which is where factoring your invoices can eliminate the time period between invoicing and payment.   

So we understand factoring, but let’s examine in more depth why this is such a viable option. There is no doubt that although many manufacturers survived the worst of the recession, times have been tough. Cash flow problems were caused by:  

• Customers making late payments

• Suppliers wanting to be paid more quickly

• Large customers extending terms of payment

Do Fortune 500 companies really factor their invoices? Believe it or not, factoring is an excellent tool used by all sizes of companies to increase cash flow without increasing debt burden.

Making Deals on a Handshake is Risky

In the excitement of landing a new account do you always remember to sign a contract with your customer? Every business requires a clear set of terms succinctly laid out prior to providing any type of product or service. We are not just talking about paving the foundation for prompt payment here, we are referring to the complete sales and deliverable process.  

Invoice Factoring Companies - Navigating the decision process 

So you want to factor your accounts receivable.  You are actively looking for a reliable invoice factoring company to use, but are not sure exactly what questions you should be asking. The concept behind factoring your invoices seems simple enough, but not all factoring companies are the same.