Helping Manufacturing Companies Grow
As a manufacturer, poor cash flow management can really become an issue at two critical times:
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As you start out
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As you start to grow
In both scenarios, you are more than likely going to take on long, and short-term debt, to finance your fixed and working capital requirements. Financing for manufacturing companies comes in many forms, let’s look at the reasons manufacturing financing is necessary.
Are your payment terms the same for your accounts payable as they are for your accounts receivable? While you remain at a certain size, you may be able to balance both your accounts payable and your accounts receivable, but as you examine your manufacturing cycle and realize you may be operating below your manufacturing capacity you are going to want to grow.
In order to grow, you have to maintain a constant supply to your regular customers, and increase manufacturing capacity to supply your new customers. But what may you have to do to increase sales?
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To take on new customers you may have to offer generous credit terms especially if you are attempting to enter new markets
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Since you are still growing, vendors may not be ready to offer reciprocal payment terms to those you are offering your customers
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You will have to increase your inventory of raw materials to make sure you have sufficient amounts to manufacture the goods for your new and existing customers
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This means your finished goods inventory needs to increase to make sure you have a regular supply to all of your customers
But can you manage your cash flow sufficiently to allow for your growth? It is one thing to generate impressive growth, but harder to have enough cash to cover your debts. Why?
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If your accounts receivable has significantly altered, potentially from 30 to 60 days, and it is taking longer to receive payment
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You must pay for an increased inventory in Raw material to make sure you have enough inventory to cover your growth
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Your inventory of finished goods ready for delivery may be sitting for longer before being turned around, costing you money
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Still having to pay vendors on a shorter cycle than the payment terms you have offered your customers
What can you do?
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Reduce the age of the accounts receivable as you become more confident with new customers
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Press your customers for prompt payment
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Carefully monitor the age of your accounts receivable
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Once you begin to order more from your vendors, look to increasing the length of payment for raw product
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Consider an alternative method of managing long payment cycles, such as accounts receivable factoring, to help reduce higher interest expenses incurred from the discrepancy between invoice and vendor payment
Bay View Funding offers manufacturing financing services that can be catered to your specific requirements. Manufacturing factoring enables you to maintain a healthy cash flow, which in turn means you are able to:
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Repay short-term debt as well as reduce long-term debt
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Invest in raw materials and feel comfortable about increased inventory waiting on the shelf
Call us today to find out more about Bay View Funding products and services.
