Financing A Manufacturing Company With Invoice Factoring

It's not unusual for small and growing manufacturing companies to have some cash flow problems

. Most of them stem from the fact that there is a delay between delivering your products and actually getting paid for them. This delay can last from 30 days and go up to 90 days and is a common industry practice.

The problem is that few manufacturing companies can wait that long to get paid. They have a number of current expenses that must be paid for - rent, supplies, electricity and salaries. The discrepancy between dollar inflows and outflows can cause major headaches to manufacturing company owners.

Getting clients to pay quickly is one possible way to fix this problem. It seldom works though. Most of your clients actually need to delay payments themselves to keep their cash flow straight. Another alternative is to use business financing to bridge the gap.

Most company owners will try and use a business loan to solve this problem. Although business loans can have several advantages, conventional loans tend to lack the flexibility needed to solve this problem. Furthermore, qualifying for a business loan can be a daunting task that requires weeks or months of work. Your lending institution will likely require that your company been in good financial health, have solid assets and have seasoned executives.

There is another solution that may work better than a small business loan. It's designed to specifically reduce the gap between outflows and inflows - it's called invoice factoring. Invoice factoring uses a financial intermediary (a factoring company) to finance your invoices while waiting for your client to pay. This strengthens your cash flow providing the liquidity you need to meet current expenses and tackle new orders.

Since your invoices are a liquid asset, most factoring companies buy your invoices outright. Because of this structure, they make most of their funding decisions based on the creditworthiness of your client. This enables you to leverage the creditworthiness of your clients and use it in your favor. Most small companies whose biggest assets is a roaster of good (but slow) paying clients can usually benefit from factoring.

by: Marco Terry

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