Why Invoice Finance Works For Manufacturers
Manufacturers have always been typical users of invoice finance (IF), such as factoring and invoice discounting.
Why Do So Many Manufacturing Companies Use Invoice Financing & Factoring?
Our research identified that manufacturers make up the largest segment of users of invoice financing, accounting for 25% of respondents in our independent survey. The next largest segment was labour hire, which accounted for 7% of our sample.
There are several reasons why so many manufacturing companies are turning to this type of funding to boost their working capital position.
Testimonial From A Factory Owner That We Helped
This is a testimonial from one factory production owner that we helped find business finance:
"As a result of their knowledge and persistence, Sean at FundInvoice were able to secure Invoice Factoring for us where others had failed.
Working in a niche sector and on a complicated project, FundInvoice made the correct recommendations and supported me throughout the process. I am sincerely thankful for their help".
MD of a Composites Manufacturer (Ref: 11235)
Reasons Why Manufacturers Use Invoice Finance
Reasons for this high usage level within this sector include the following:
- Gross Profit Margins - typical gross profit margins, amongst manufacturers, may range from 25% to 35% so the prepayment from invoice finance (typically 85% of invoice value) will allow a manufacturer to pay for their raw materials and other costs before they get paid. Discounts with suppliers can often be negotiated when you have cash to pay quickly.
- Payment Terms - historic reports into late payment by sector identified 3 manufacturing sectors as among the sectors having to wait the longest for payment. Studies have found that in only a small percentage of cases, manufacturers were paid on time. These delayed payments create a cash flow gap between paying suppliers for raw materials and getting paid. Invoice finance bridges this gap.
- Straightforward Transactions - the nature of manufacturing is such that it normally gives rise to simple transactions. You make something, ship the product and get paid for it. This type of straightforward transaction is very appealing to invoice financiers as they can easily value such debts, to fund against them.
- Seasonality - some manufacturing can be very seasonal by nature e.g. manufacture of fireworks. In such cases, there may be a need for temporary cash flow assistance to get through peak trading periods. Some invoice finance solutions allow you to selectively use the funding as and when you need it, controlling costs.
- Expansion - When manufacturers expand rapidly, they often turn to scalable invoice finance to support their cash flow during rapid growth.
So the high proportion of invoice finance users within the manufacturing sector is not surprising when you consider the above points.
Invoice Finance for Manufacturing: Supporting Cash Flow in a Complex Sector
In the manufacturing sector, managing cash flow can be particularly challenging due to long production cycles and payment terms. Invoice finance for manufacturing offers a practical solution by allowing manufacturers to release the capital tied up in unpaid invoices.
See this video: Getting Help To Pay For Raw Materials
This type of finance can bridge the gap between delivering goods and receiving payment, which is crucial for maintaining consistent cash flow. By unlocking working capital quickly, manufacturers can invest in raw materials, fulfil larger orders, pay factory costs and take advantage of growth opportunities without waiting for customer payments to clear.
The Benefits of Factoring for Manufacturers
For manufacturers dealing with multiple clients and long payment cycles, factoring for manufacturers can be a game-changer. This financial solution not only advances funds against outstanding invoices but also includes credit control services.
A factoring provider will manage the collection of customer payments, freeing up manufacturers to focus on production and growth rather than debt collection. Factoring is particularly beneficial for businesses in manufacturing because it reduces the administrative burden and provides reliable, upfront funding to cover operating costs like wages, supplies, and overheads.
Manufacturing Factoring: A Tailored Finance Solution
Manufacturing factoring is a specialised form of finance tailored to the unique needs of manufacturers. Unlike standard factoring, manufacturing factoring considers the complexities of production timelines, large orders, and varying payment terms. It helps businesses in this sector access immediate funds to cover the high costs of materials and labour.
With the flexibility that manufacturing factoring provides, manufacturers can negotiate better terms with suppliers and take on new orders without cash flow constraints, enabling them to thrive in competitive markets.
Factoring For Manufacturing: Streamlined Finance for Product-Based Businesses
Manufacturing factoring offers a tailored approach to managing cash flow by advancing a percentage of unpaid invoices. This allows manufacturers to receive immediate payment for products delivered, reducing the financial strain caused by long payment terms. Factoring also includes credit control services, easing the burden of chasing invoices so that manufacturers can focus on scaling production.
Case Studies About Invoice Finance & Factoring For Manufacturing
This is a case study about a company in the manufacturing sector that we have helped.
- Factoring For A Manufacturer - how we found recourse factoring for a manufacturer with a poor credit history.
Further Resources
- Blog Post: Factoring for a seasonal fireworks manufacturer
- Full list of Industry sectors eligible for finance
