6 Reasons Manufacturing Companies Use Factoring

Manufacturing businesses produce countless products in hundreds of industries. If you are a manufacturer, one problem you may encounter is that clients don’t always pay their invoices promptly. You may offer flexible terms that give them several months to pay. This can help you attract and keep customers, but it’s not great for your cash flow. Invoice factoring can help you fill these gaps so you get paid for invoices right away.

What Is Manufacturing Invoice Factoring?

Invoice factoring is a type of financing that allows a manufacturing business to obtain immediate working capital by selling their unpaid invoices to a third party that offers factoring services. In exchange for a small fee, the factoring company purchases the invoices and then collects payment from your customers.

What Type of Manufacturing Companies Use Factoring?

Invoice factoring can be used by many types of manufacturing companies, including:

• Welding
• Supplement Manufacturing
• Apparel and Screen Printing
• Food and Beverage Co-packing
• Electrical Manufacturing
• Metal Fabrication
• Chemicals
• Transportation Equipment
• Consumer Electronics
• Medical Equipment
• Aerospace
• Automotive
• Telecommunications
• Industrial – Automation systems, robotics, and sensors.

These are only some examples. If you manufacture any product and have paying customers, you probably qualify for factoring.

Top Reasons to Use Manufacturing Invoice Factoring

Why should you consider using invoice factoring to fund your manufacturing business? Here are some compelling reasons.

1. It gives you fast access to working capital. Compared to loans and other types of financing, invoice factoring gives you the funds you need within a couple of business days.

2. Makes it easier to meet payroll and pay businesses expenses. By providing you with working capital when you need it, factoring ensures you can meet all your normal business expenses.

3. It helps you expand your business. Use funding to invest in new equipment, rent or buy a larger space, or hire more employees.

4. It allows you to outsource collections. When you factor an invoice, the factoring company takes on the responsibility of collecting payment. This relieves you of time-consuming administrative tasks such as sending out reminders or calling clients who are late in paying.

5. It lets you obtain funding without incurring debt. Unlike a loan, factoring does not involve taking on debt. Fees are taken out of payments, so once the transaction is complete, you have nothing to pay back.

6. It’s flexible and scalable. Invoice factoring lets you obtain funding that’s based on your sales volume. This means that as your business expands, you can increase the number of invoices you factor.

How Does Invoice Factoring Work?

We’ve provided a general idea of what invoice factoring is and how it can be beneficial to manufacturers. You may be wondering how it actually works, step by step. Here’s a summary of what happens after you are approved for invoice factoring.

• You deliver your products or services to your customers. This will generate an invoice, as usual.
• The factoring company buys the invoice from you. Instead of waiting for the customer to pay, you receive an immediate payment that is generally between 70% and 90% of the invoice’s value.
• When your customer pays the factoring company, you receive the rest of the invoice’s value with a factoring fee deducted.

Grow Your Business With Invoice Factoring

There are many reasons that so many manufacturing companies use factoring. It can be used instead of or in addition to other types of financing. Above all, factoring gives you quick access to working capital and frees you from waiting for your customers to pay

Riviera Finance is nationally recognized as a leader in business financing and provides full-service, non-recourse invoice factoring to growing companies.

Other blogs you may be interested in: 

• CHIPS Act Recap
• The History of Factoring
• Advantages of Small Business Invoice Factoring
• Get Your Invoices Paid Faster With Business Services Factoring