How to figure out if manufacturing factoring is a good choice for your business.
In the manufacturing industry, it is not unusual to offer long-term payment plans to be competitive, encourage clients to place larger orders, or establish a strong, trusting relationship with clients.
However, margins in the manufacturing business sector can be tight. Manufacturers have many expenses including purchasing raw materials, pre-paying sub-contractors and suppliers, purchasing equipment, renting space, and paying employees. Because of this, manufacturing companies with low cash flow balance may not be able to afford offering trade terms to customers. Fortunately, there is a solution called manufacturing invoice factoring helps manufacturers offer competitive terms to clients while maintaining healthy cash-flow balance to sustain and grow their business.
What is manufacture invoice factoring?
Manufacturing invoice factoring is a financing plan that helps solve cash flow and working capital issues for businesses who operate in industries where it is common to offer long payment terms. Usually anywhere between 30 to 120 days. Instead of loan, traditional invoice factoring involves selling outstanding invoices to a third-party company called the factoring company. The factoring company will give the manufacturing company an advancement based on the value of the invoices with the requirement that the customers will pay the invoice back. In 2012 Fundbox pioneered a new way for invoice factoring. It is called Invoice Financing and it is different than factoring in several ways:
- Fundbox does not buy invoices and therefore Fundbox does not take control over collections from your customers.
- Fundbox is able to offer cheaper fees
- With Fundbox you do not pay any set up or maintenance fees. The is no cost to sign up and no commitment to carry any balance or minimum factoring volume
- Fundbox advances 100% of your invoice value. Traditional factors usually shave 10%-20% from the top of the invoice amount
With manufacturing invoice factoring, companies can continue to fulfill orders while taking on new ones.
How Does Manufacture Invoice Financing Work?
Manufacturing invoice financing (a.k.a. receivable financing) is an alternative to manufacture invoice factoring. Like invoice factoring, invoice financing resolves low cash flow and working capital issues. They provide access to cash by advancing fund based on invoices.
The main differences are that with invoice financing:
- A credit check may not be necessary because financing companies have many tools to determine the client’s reliability without a credit check.
- Companies get complete control of their collection services
- Companies can receive 100% of the advancement beforehand
- Getting approval for financing is shorter than factoring and take only a few hours or days
- The process is all electronic, meaning withdrawing and paying funds is fast and convenient
- Usually no hidden fees or unexpected costs
Manufacturing business with a reliable client base can typically benefit from manufacturing invoice factoring. As long as the manufacturing business can prove to the factoring company that their clients are known to pay on time and have high-volume orders, factoring companies will most likely be able to work with them on setting up a financing plan.
With Fundbox, the minimum criterion to qualify for Fundbox Invoice Financing includes:
- Being in business for over 2 months
- Use of any one of the digital invoice management solutions partnered with Fundbox such as Quickbooks, Harvest, Hero, Zoho, Jobber, Paypal, Clio, and more
- Recommended annual sales revenue of $50,000 or more