Why Manufacturing companies need a finance partner?
The manufacturing industry is a working capital intensive industry. Labor, equipment, material, facility and logistics costs can add up for each job that is being taken on. Having enough working capital is paramount to a manufacturing business being able to grow.
What many manufacturing companies find:
Many companies in manufacturing find they need to spend the time and money to order the parts or materials, pay for assembly, and have it shipped to the customer just to be able to invoice for a job. Then once the invoice is submitted, it still can take from 30-60 or more days to get paid for that job. Meanwhile the next order is in and you have to use your own working capital to manufacturer the order of another client or the next project.
How invoice factoring can help:
Invoice factoring typically can get you 80-90% of the invoice value in cash on the day you submit the invoice to your client. This enables the manufacturing company to have the cash in hand to pay for the costs of the next project. When the client pays the invoice, the factor takes their fee of generally 1-3% of the invoice value and the manufacturer then receives the balance. This is a great way for a manufacturer to quickly scale up and have the working capital needed for continued growth.
Letters of Credit/ PO financing for Manufacturers:
Another useful finance tool can be Letters of Credit. This is when a finance company essentially guarantees payment to an overseas manufacturer enabling them to go ahead and make the product and so the manufacturer or distributor doesn't need to have the money for production up front. Check out our article on this at Letters of credit.
How a Manufacturer gets set up with factoring:
Here are the basic 4 steps:
If you have any questions or want to discuss how Meritus can help provide accounts receivable factoring or import financing for your business, contact us at 877-648-3709 or complete the contact form.