Manufacturing Invoice Factoring

Boost your cash flow in days

Cash flow is a chronic problem in manufacturing. The cost of production has to be funded before you get paid for a product, and net terms are often 30, 60, 90 days or more.

Manufacturing invoice factoring, aka accounts receivable factoring, can provide the much-needed capital you need to cover operating costs and grow your business while waiting while waiting for your customers to pay. But just how exactly does factoring for manufacturing companies work, and how do you know if it’s right for your manufacturing business? This guide has you covered with everything you need to know about factoring services for manufacturing.

What Is Manufacturing Invoice Factoring?

Invoice factoring is a financial service in which a business sells its accounts receivable (invoices) to a third-party factoring company at a discount, in return for immediate cash. This arrangement provides the business with quick access to funds, improving cash flow and liquidity, while the factoring company takes responsibility for collecting the invoice from the business’ customer. Factoring is commonly used by manufacturing companies to bridge the gap between delivering goods and receiving payment, allowing them to continue operating smoothly without being constrained by slow-paying customers.

How Manufacturing Factoring Works

Here’s how factoring for a manufacturing company typically works at FundThrough:

1. Create or connect your account in minutes.

Create a free account or connect your QuickBooks, and provide information about your business.

2. Choose which invoices to fund.

Upload invoices into FundThrough or pull in eligible invoices from QuickBooks. We provide unlimited funding for your business based on the size of your outstanding invoices. Select which invoices you want to fund, and submit them in one click (after customer set up).

3. Get Funded.

Upon approval, funds are deposited into your business bank account as soon as the next business day. Put your capital to work for growth projects, payroll, equipment, hires, and more.

Ready to fund your invoices?

Manufacturing Invoice Factoring Benefits

Manufacturer factoring offers several advantages to manufacturing companies. Here are some of the key benefits of manufacturing factoring:

1. Improved Cash Flow: One of the primary benefits of invoice factoring services is the immediate infusion of cash it provides. Rather than waiting for customers to pay their invoices, you can access funding for the invoice value upfront. This helps bridge the cash flow gap and provides funds to cover operational expenses, such as raw materials, payroll, and other immediate financial obligations.

2. Quick and Easy Access to Funds: Manufacturer invoice factoring is typically a fast and straightforward process compared to traditional financing options like bank loans. Once you have an established relationship with a factoring company, subsequent funding can be obtained quickly, often within a couple of business days. This rapid access to funds can be vital for manufacturers who need to seize business opportunities, fulfill orders, or address unexpected expenses promptly.

3. No Debt Incurred: Unlike a loan, invoice factoring does not create debt. It is not a form of borrowing, but rather a sale of accounts receivable. This means that your business is not taking on additional financial liability or burdening its balance sheet with debt. Manufacturer invoice factoring can be a useful option for companies that want to avoid traditional debt financing, or that do not qualify for traditional bank loans.

4. Flexible Financing Option: Invoice factoring provides flexibility. The funding amount is based on the value of the invoices, allowing your business to access funds in proportion to your sales volume. As your company grows and generates more invoices, the available funding can increase accordingly. This scalability makes invoice factoring an adaptable financing solution that can support the changing needs of your business.

5. Outsourced Accounts Receivable Management: When invoices are factored, the factoring companies for manufacturing take over the responsibility of collecting payments from customers. This relieves you of the administrative tasks and costs associated with accounts receivable management, such as invoicing, tracking payments, and collections. By outsourcing these functions to the factoring company, you can focus on your core competencies and save time and resources. (If this concerns you, see how we work with your customers.)

It’s important to note that while the manufacturing invoice factoring process offers numerous benefits, each company’s situation is unique. Be sure to carefully evaluate the costs, terms, and reputation of the factoring company before entering into a factoring agreement to ensure it aligns with your specific financial needs and goals.

Factoring Companies for Manufacturing: How to Choose the Best Option

Choosing a manufacturing invoice factoring company is a lot like choosing any lender: you have gather relevant information and evaluate it in the context of your situation. We recommend you learn about the following for any manufacturing invoice factoring company you’re considering.  

  1. Funding limits. These range from $500 to unlimited, impacting the number and size of the invoices you can factor. FundThrough offers unlimited funding.
  2. Advance rates. These vary from 80-95% of the invoice value, with some companies like FundThrough offering a 100% advance rate, affecting the immediate cash you receive.
  3. Service level agreements. SLAs detail the speed of invoice processing and fund disbursement, with some companies, like FundThrough providing same-day funding after the first invoice funding.
  4. Factoring fees. These include the discount rate and potential hidden fees such as service or application fees, with the total cost reflecting additional services like account management or online portals.
  5. Commitment levels. Some providers require long-term contracts for all invoices from a client and others like FundThrough offer spot factoring for selected invoices.
  6. Industry experience. Knowledge of your industry can streamline the factoring process, as familiarity with industry-specific invoicing and payment terms can be beneficial.
  7. A tech-powered approach. The approach to technology and efficiency varies among companies, with some offering comprehensive online systems for managing factored invoices while others may rely on more manual processes.
  8. Recourse vs. non-recourse factoring. Recourse factoring means your liable if the customer fails to pay. With non-recourse, you’re protected from that risk, but it’s typically more expensive.

Ready to get your invoices paid early?

Why Manufacturing Companies Choose FundThrough

We give you quick, easy funding through our tech-powered platform, making factoring the best experience it can be. When you work with FundThrough, you can also expect:

  • Unlimited funding based on the size of your invoices
  • 100% advance rates, minus a single fee
  • No hidden fees
  • Flexibility to fund the invoices of your choice (spot factoring)
  • No minimum funding amount requirements after your first funding
  • Seamless, streamlined experience with automation, AI, and integrations with QuickBooks and OpenInvoice. 
  • Highly reviewed support team and a partner in your success

 

Ready to fund your invoices?

It’s right for your business if you have a cash flow need and outstanding invoices for creditworthy customers. Manufacturing factoring solves cash flow challenges where they begin, with long net terms.

What Is Invoice Finance for Manufacturers?

Invoice finance for manufacturers is a financial solution that enables manufacturing companies to access working capital by using their unpaid invoices as collateral. You get an advance on your invoice that you pay back yourself to the factoring company in agreed-upon instalments. While it eliminates the need for customer contact, invoice finance for manufacturers requires managing accounts receivable on your own. 

How Does Invoice Financing for Manufacturers Work?

Invoice financing for manufacturers works similarly to factoring by using unpaid invoices as collateral to access immediate cash flow. You submit your outstanding invoices to a factoring company, who gives you an advance on the value of your unpaid invoice. You put your money to work immediately. Then, you repay the advance yourself through instalments to the factoring company. Rates are similar to factoring, ranging from 1 percent to 6 percent, but the interest rate is usually split up across the payments. Advance rates for invoice financing range from 80 percent to 100 percent.

 

How Does Manufacturing Factoring Compare With Other Kinds of Business Financing?

When evaluating financing options for your business, it’s important to consider various factors to determine the best fit. To help you make an informed decision and select the one that best meets your business needs, we’ve broken down the pros and cons of some of the most popular manufacturing financing options.

Lines of Credit

A line of credit (LOC) is a lot like a credit card. You can withdraw money up to a certain maximum amount determined by your financial institution. You can cover day-to-day expenses and pay back your debt, only to borrow again when needed.

Pros

  • You can borrow when you need it.

  • When you’re short of cash, you can borrow only what you need as long as you don’t exceed your limit.

  • Making on-time payments can help improve your credit score.

  • Lines of credit can have low interest rates.

  • The payments on the line of credit vary and vary depending on your outstanding balance.

 

Cons

  • As with loans, oftentimes banks won’t give small, growing businesses a line of credit. They often need cash faster than the process would allow, anyway.

  • There will be limits on the maximum amount you can borrow, which might not always be enough.

  • Although you pay-as-you-go, if you miss payments, are late, or move outside the terms of your agreement, you might face high fees.

  • It’s easy to misuse a line of credit (just like it’s easy to misuse a credit card).

  • If your business fails, you are responsible for any payments and debt incurred from using your line of credit.

  • You need to have been in business for years and will need to provide bank account information, financial statements, tax returns, and more to qualify.

 

Business Credit Cards

Like all forms of funding, business credit cards can be helpful in the right situations.

Pros

  • It’s easier to qualify for a business credit card than for a line of credit or business loan.

  • You have quick access to the cash you need when you need it.

  • Many business credit cards have reward programs or incentives, like cash back or airline miles.

  • A business credit card can help build credit, which is helpful if you ever need to apply for a bank loan.

 

Cons

  • You may need to provide a personal guarantee to qualify.

  • High interest, annual fees, and late charges can add up, especially if funding a large expense.

  • Many business credit cards do not offer purchase protection.

  • Business credit cards come with security risks like fraudulent charges from unauthorized use and stolen credit card numbers.

  • You risk overspending.

 

Receivables Factoring

Account receivable factoring for manufacturing is not a loan. The application process is quick. There is no repayment obligation as long as your customer pays their invoice, no high interest rates, and no debt to record on your company’s balance sheet. Plus, many more companies will qualify for factoring for manufacturers. 

Pros

  • You have access to fast cash when you need it based on the value of your invoice(s).

  • Cash advances can greatly improve shortfalls in cash flow due to slow-paying clients.

  • Does not require your business to have a long credit history, which is best for start-ups and fast-growing firms.

  • Factoring relies on the creditworthiness of your customers, not yours.

  • Invoice factoring is easier to obtain than most other forms of funding.

  • Funding can increase with the value of your invoices. (FundThrough offers unlimited funding.)

  • If your business is seasonal, factoring can infuse cash into your business to get you through the downtimes.

  • No additional debt on your balance sheet

  • You give up no equity or control in your business in exchange for funding with factoring.

 

Cons

Simple. Intuitive. Manufacturing Invoice Factoring.

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