subject: How To Finance Your Machining And Metal Working Company [print this page] Most machine shops tend to be very cash flow intensive companies. They have to handle purchase orders, pay suppliers, handle payroll and collect from clients. All these events have to happen with the right timing for the business to be successful. And usually, timing is very tight. And unless the company is well funded, this means that the company is very sensitive to late client payments. For example, a client delay in a payment can trigger a chain reaction of events that leads to missing supplier payments or delaying payroll.
This problem can easily be solved with business financing. Unfortunately, getting financing in the current economic environment is very difficult. Few institutions are willing to provide business loans or lines of credit to companies that can't provide sufficient and substantial secondary collateral. Aside from having substantial assets, companies need to show impeccable financial statements, a strong management team and a solid business plan. Few small or midsized machine shops can meet these requirements - putting a business loan out of the reach of most.
A second alternative is to ensure that client payments are always on time, or ahead of schedule. While coaxing clients to pay quickly can be difficult, you can accomplish a similar result by financing your invoices with using factoring financing. Invoice factoring provides you an advance on your invoices, providing the funding you need to meet expenses and complete projects. The transaction is settled once your client actually pays the invoice.
Since factoring provides a predictable and accelerated payment stream, your company is usually in a better position to take on new clients and projects. When used correctly, accounts receivable factoring can help a company grow.
In general, factoring is much easier to obtain than a business loan. To qualify for it, your clients must be credit worthy companies, and your business must be free of liens and encumbrances. Thanks to the current difficulties in getting conventional funding, invoice factoring has been gaining traction in becoming a mainstream source of funding.
