Receivable factoring is a financial tool that allows manufacturing companies to receive immediate payment for the goods and services they provide, rather than having to wait for their clients to pay their invoices. Here’s how receivable factoring works:
- The manufacturer creates an invoice for the goods or services they have provided to their client.
- The manufacturer then sells the invoice to a factoring company, which advances the manufacturer a percentage of the invoice amount, usually between 70-90%.
- The factoring company collects payment from the manufacturer’s client when the invoice is due.
- Once the client pays the invoice, the factoring company returns the remaining balance to the manufacturer, minus a fee for their services.
There are several benefits to using receivable factoring for manufacturing companies:
- Immediate access to cash: One of the main benefits of invoice factoring is that it allows manufacturers to receive payment for their goods or services almost immediately, rather than having to wait for their clients to pay their invoices. This can be especially beneficial for small or growing manufacturing companies that may not have the resources to wait 30, 60, or even 90 days for payment.
- Improved cash flow: Invoice factoring can also help to improve a manufacturer’s cash flow by providing a steady stream of cash. This can make it easier for manufacturers to meet their financial obligations and invest in the growth of their business.
- Ability to take on larger clients: Invoice factoring can also enable manufacturers to take on larger clients who will require longer payment terms. Without invoice factoring, manufacturers may not be able to afford to wait for payment from these clients, which can limit their business growth.
- No debt: Invoice factoring is not a loan, so manufacturers do not have to take on debt in order to access cash. This can be especially beneficial for companies that may not qualify for traditional financing due to bad credit or a lack of collateral.
- Improved relationships with clients: receivable factoring can also help to improve relationships with clients by allowing manufacturers to offer longer payment terms. This can make it easier for manufacturers to win new business and build trust with their clients.
- No need to hire additional staff: receivable factoring companies often provide services such as credit checks and collections, which can help to free up manufacturers’ time and resources. Manufacturers do not have to hire additional staff to handle these tasks, which can save them money.
Overall, receivable factoring can be a valuable financial tool for manufacturing companies. It allows them to receive immediate payment for the goods and services they provide, which can help to improve cash flow and enable them to take on larger clients. Invoice factoring can also help to improve relationships with clients and save manufacturers time and resources by providing credit checks and collections services.
American Receivable has helped manufacturers grow and thrive for the last 44 years! Let our experts help get your manufacturing company make the most of 2023!