Manufacturing is a diverse industry – but something that all business owners have in common is the need to maintain steady cash flow, all while navigating the intricacies of production, distribution, and customer payments. Invoice factoring – a term which comes under the umbrella of ‘invoice finance’ – is an important and valuable tool that offers companies a solution to cash flow restraints and enables sustainable growth. In this article, we will explore what invoice factoring offers, the options available and what it can mean for the manufacturing industry.
Understanding Invoice Factoring
Invoice factoring is a type of borrowing facility associated with the invoice finance industry. Factoring allows you to release cash from outstanding invoices – this is a straightforward process, where you send your customers an invoice in your usual routine, but also send a copy to your chosen lender. The lender will then release up to 90% of the gross value of the invoice the same day. With an invoice factoring facility, the lender takes responsibility for credit control and communicates with your clients when their invoices are due. Once all invoices have been paid, the lender will then release the remaining 10% of the invoice value, minus the lender’s fees.
The Cash Flow Challenge in Manufacturing
Cash flow is the lifeblood of any manufacturing operation, driving essential processes such as purchasing raw materials, paying employees, covering overheads, and investing in initiatives to support growth. However, when providing goods on credit terms, the manufacturing industry often has difficulties with prolonged payment cycles, when clients can take weeks or even months to settle invoices. This delay creates significant issues for businesses when they are unable to meet immediate financial obligations or seize growth opportunities.
The Benefits of Invoice Factoring for Manufacturing Companies
- Improved Cash Flow: By leveraging invoice factoring, manufacturing companies can unlock the ability to access funds quicker. This can eliminate issues with cash flow and ensures businesses have the financial agility to take on further growth opportunities, fulfil large orders and navigate any unforeseen challenges.
- Lender Handles Credit Control: When you choose invoice factoring as your type of invoice finance, the lender will take responsibility for chasing any clients that have invoices that are due to be paid. This can take away some of your administrative tasks which may be helpful, but if you would prefer to keep credit control in-house this is also an option. As your broker, Contact Business Finance will go through all of the finer details of your invoice finance facility to help you make the right decision for you and your business.
- Accelerate Growth Opportunities: A common situation for manufacturing businesses is having the opportunity to take on a large order but not having the working capital to fulfil the requirements. This can be extremely frustrating, both having to say ‘no’ to a potential customer as well as losing out on a larger payment. Invoice factoring can make this possible – when your cash flow is healthy, you are able to utilise more opportunities to grow and grow.
Conclusion
In summary, invoice factoring offers a financial solution for manufacturing companies wishing to optimise their cash flow and unlock potential for growth. By entering an invoice factoring facility, businesses can overcome challenges that come along with trading with other businesses on credit terms, and seize growth opportunities with confidence and flexibility. As the manufacturing industry continues to evolve, embracing innovative solutions such as invoice factoring places companies in a strong position to drive sustainable success and resilience in the industry.
Finding an invoice finance facility can be a daunting prospect – we strongly recommend that you work with a broker who knows the industry inside and out. At Contact Business Finance, we have worked with many manufacturing companies to help them find the most suitable lender for you and your business’ needs. We begin by getting to know you and your company and discuss the opportunities available to you. We are then able to compare the market, free-of-cost. An introduction is then made to your chosen lender, and we will be your support through the process of signing up for the facility. We are with you every step of the way.
If an invoice finance facility is something that could benefit your business, don’t hesitate to reach out to us. Contact Business Finance is based in Wolverhampton in the West Midlands – so if you are nearby, we are always happy to meet and have a chat about your business’ requirements. Alternatively, give us a call on 01902 219260 or email us at info@contactbusinessfinance.co.uk.