Invoice Factoring for Manufacturing Companies

Thursday 23rd May 2024


We compare all invoice factoring options to make sure you get the right product for your construction business

Unsure whether invoice factoring is the right product for your business? We compare the best invoice finance options available to get you the best deal. Get a quote online or call us on the freephone number below to speak to one of our cashflow finance experts.

Get a quote 0808 250 0859


In This Article:

  • What is Invoice Factoring for Manufacturing Companies?
  • Benefits of Invoice Factoring for Manufacturing Companies
  • How Does Invoice Factoring Work for a Manufacturing Company?
  • Use Cases for Factoring Advances
  • Typical Costs and Terms
  • Conclusion

What is Invoice Factoring for Manufacturing Companies?

Manufacturing companies often face cash flow challenges due to the long payment cycles associated with large orders and bulk purchases. Invoice factoring provides a practical solution, offering immediate access to working capital by converting unpaid invoices into cash.

Invoice factoring involves selling your unpaid invoices to a factoring company in exchange for an immediate cash advance. This helps manufacturing companies maintain steady cash flow, allowing them to cover operational expenses, purchase raw materials, and invest in growth opportunities without waiting for customer payments.

Benefits of Invoice Factoring for Manufacturing Companies

  1. Immediate Cash Flow Improvement: Factoring provides quick access to cash, enabling manufacturers to meet payroll, purchase supplies, and cover other essential expenses promptly​.
  2. No Debt Incurred: Unlike traditional loans, invoice factoring does not add debt to your balance sheet. Instead, it converts accounts receivable into cash, improving liquidity without increasing liabilities.
  3. Flexibility: Manufacturers can choose which invoices to factor, offering flexibility in managing cash flow based on current financial needs. This can be particularly useful for handling seasonal demand fluctuations and large orders​.
  4. Easier Qualification: Factoring companies evaluate the creditworthiness of your customers rather than your own business, making it easier for companies with less-than-perfect credit to obtain funding.

How Does Invoice Factoring Work for a Manufacturing Company?

  1. Invoice Submission: Submit your unpaid invoices to a factoring company.
  2. Approval and Cash Advance: The factoring company verifies the invoices and advances a percentage of their value, typically between 80% and 90%​.
  3. Customer Payment: Your customers pay the invoice amount directly to the factoring company.
  4. Final Settlement: Once the invoice is paid, the factoring company releases the remaining balance to you, minus their fees​.

Use Cases for Factoring Advances

  • Purchasing Raw Materials: Immediate funds allow manufacturers to buy raw materials in bulk, often at discounted rates, ensuring continuous production and fulfilling new orders.
  • Covering Payroll: Ensuring timely payment to employees helps maintain morale and productivity.
  • Investing in Equipment: Funds can be used for maintenance or purchase of new equipment, crucial for operational efficiency and growth.
  • Seizing Business Opportunities: With ready cash, manufacturers can take advantage of unexpected opportunities without financial constraints.

Typical Costs and Terms

Factoring fees for a manufacturing company generally range from 2% to 4.5% for the initial period, with additional fees applying if the invoice remains unpaid beyond the initial term. Advance rates usually range from 70% to 90% of the invoice value​.

Conclusion

Invoice factoring is a strategic financial tool for manufacturing companies, providing immediate cash flow to cover operational expenses, invest in growth, and maintain stability. By leveraging unpaid invoices, manufacturers can navigate financial challenges effectively and seize new business opportunities.

We compare all invoice factoring options to get your construction company the right product and the best deal.

Complete the form below to get a quote.

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