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Is Invoice Factoring an Option for Manufacturing Companies?

Posted by Aaron Zahedani on Wed, Sep 25, 2013 @ 07:45 AM

invoice factoring for supply chainSo 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

These issues have not gone away as the global economy is trying to recover. They are, in fact becoming industry standard practice. Many large retail chains are forcing general merchandise suppliers to wait longer for payment. In many cases there is a disregard for carefully planned contracts already in place. For example, in September of this year, Marks & Spencer, a large retail chain based in the United Kingdom, announced it would force almost 500 of its regular independent suppliers to wait 11 weeks for payment, as the Company’s Chief Executive tries to accelerate a turnaround of its clothing business. This is also happening to many companies in the States. Many large companies in the retail sector are initiating one-sided contracts and varying terms of trading. It is hard not to accept, if you wish to continue to do business with these large companies. Who will this hurt most? The small suppliers who will then be forced to struggle with cash flow as they adapt to new terms of business.  

There are options to help try and alleviate the problem of late payment.  

  • Use financial reserves to pay the bills

  • Offer quick pay discounts to customers

  • Pay suppliers more slowly

  • Factor invoices

This is where factoring comes in! Companies like Bay View Funding can supply the cash needed to purchase equipment and materials, finance inventory, and negotiate supplier discounts.   

Conventional business financing is often hard to obtain. If you have assets that can be leveraged as collateral you may not have a problem, but many companies are not in a position to do this. If your problem is slow paying customers, factoring is a great option for your company.  

What will this mean if you factor your invoices?  

  • No more worrying about customers who do not pay on time

  • Your invoices will be funded leaving you with immediate cash flow

  • Flexible lines of finance from your factor so you decide when you need the money

Most of your large customers will have excellent commercial credit, and it is the credit of your customer that matters when financing your accounts receivable. Remember, better cash flow also enables you to invest in your business, fulfill new orders, and maintain your competitive edge.  

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Topics: Alternative Financing, Manufacturing and Distribution Financing, How to Grow Your Business, The Benefits of Invoice Factoring, About Invoice Factoring

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