Manufacturing companies rely on invoice factoring to ensure positive cash flow during periods of growth or spikes in demand. A manufacturing company can receive an order, invoice the customer, factor the invoice, receive the cash, pay for wages and materials to produce the order, and receive the difference when the invoice is collected. The best manufacturing factoring companies have the most experience in dealing with the manufacturing industry.
When Manufacturing Companies Use Factoring
Manufacturing companies use invoice factoring to scale operations when demand is increasing. They also use invoice factoring companies as a collections and receivables service to avoid spending resources that are best used internally. Finally, manufacturing companies may factor individual invoices to ensure orders can be filled and materials can be paid for.
Pros and Cons of Manufacturing Factoring
The leading benefits for manufacturing factoring include its low cost, accessibility, and added services. Manufacturing factoring is less expensive than most short-term funding options, and it has lower minimum requirements, making it accessible to more businesses. Factoring companies also provide accounts receivable tracking and collection services to small business owners.
There are some drawbacks to invoice factoring, including the need to factor a certain number of invoices on a regular basis. There is also the risk of invoices not being collected, which a manufacturer can be held liable for. Finally, if invoice factoring is used to scale operations, it can be difficult to support the company without continuing to factor invoices.
How to Evaluate a Manufacturing Factoring Company
When selecting a manufacturing factoring company, it’s important to ensure that it offers sufficient funding at an acceptable rate. The next major step is to ensure that qualifications can be met, which will save you time applying and getting rejected. Finally, small business owners that are in a rush to get funding quickly can select a factoring company that has a quick funding speed.
The top three factoring companies for manufacturing are:
Manufacturing companies seeking a funding solution should work with an invoice factoring company if they expect to need funding on an ongoing basis. It’s one of the best ways to scale a manufacturing business and ensure that you can onboard new clients while servicing existing ones without interruptions.