Manufacturers face a wide range of challenges day to day but one key element for a successful business is maintaining a positive cashflow. As a manufacturer you need to be responsive to fulfil orders and if you are unable to have this flexibility you will be in a position where you will no longer be able to accept and fulfil new and old contracts.
Invoice Finance can assist your cashflow by releasing funds tied up in unpaid invoices. By receiving a 90% advance you will be able to buy materials, settle outstanding balances with creditors, pay wages and pay any distribution costs to enable you to fulfil your orders. By freeing up cashflow you may even be able to renegotiate payment terms with your suppliers to help improve your margins. For example by purchasing a larger quantity of units you may benefit from a lower unit cost or by paying for the materials upfront a supplier may offer you an early settlement discount. This can help with offsetting your costs of factoring but something to also consider is working the cost of factoring into your pricing to maintain your desired profit margin. This is how it works:
As well as funding your invoices you may want to look at protecting your invoices against non payment. There are typically 2 reasons for non payment protracted default or insolvency.
Protracted Default – This is when a customer has the ability to pay but is refusing to.
Insolvency – Your customers business has failed.
By adding bad debt protection to your invoice finance facility, you will be covered if your customer fails. Some factors will also protect you against protracted default, settling invoices after a certain payment period. A factoring provider will help you assess your customers with or without BDP to ensure you are not being over generous with your credit limits.
