Managing the cash flow of a manufacturing company can be a very difficult and complex task. On one hand, you have company expenses which usually have to be paid on an ongoing basis. Furthermore most expenses have short time frames (e.g. payroll, rent, utilities, suppliers) , meaning that they are due in 30 days or less. On the income side of the equation, you have commercial and industrial customers that usually demand up to 60 day payment terms. Said simply, expenses go out quickly while revenues come in slowly. This can cause working capital problems for manufacturing companies that don’t have sufficient financial resources.

One way to address this situation is to deploy invoice factoring. Factoring solves this problem by accelerating the speed at which you get the revenues that are tied to your slow paying accounts receivable. This improves working capital and provides your manufacturing company with the cash flow it needs to cover operational expenses and to take on new clients. The transaction is structured using a factoring company, which advances funds against your receivables, while holding your invoices as collateral. Transactions are settled on an ongoing basis as your customers pay their invoices on their usual schedule.

The whole premise behind factoring is that factoring companies are willing to finance your company based on the credit quality of your accounts receivable. Because of this, your customers must have good commercial credit. However, this is not the only requirement. Your company must also meet the following criteria:

• You must only invoice for delivered and accepted products
• Your accounts receivable must be free of encumbrances
• Your company must not have legal or tax problems
• Management must be experienced and of good reputation

Although factoring is easier to qualify for than other types of business financing, that is not the main or only benefit. The main benefit of factoring is that the financing line is flexible, because it’s tied to your invoices. This means that your funding can dynamically increase to match your sales as long as your customers and your company meet the factoring requirements. This makes invoice factoring an ideal solution for growing manufacturing companies that have working capital problems due to slow paying customers.

Most tool and die companies run on relatively thin profit margins and very tight cash flows. Customers demand rock bottom prices while at the same time insisting on net 30 to net 60 payment terms. On the other hand, your company is faced with a number of immediate expenses. You have payroll which happens weekly or bi-weekly, suppliers, rent and other expenses that have to be covered constantly.  In summary, you have slow revenues coupled with quick expense, which can be a problem.

If your company has an appropriate cash reserve or business financing, having slow revenues should not be a major problem. However, if your company does not have reserves or financing, your could be in trouble.

Obviously a business loan or line of credit could be used to remedy this problem. However, most business loans are difficult to obtain. Financial institutions will ask for spotless financial statements, substantial collateral and and well heeled owners. This will leave most companies out of the running.

There is one solution that has been gaining traction at solving this kind of problem though – it’s called invoice factoring. Factoring solves the cash flow problems created by slow paying customers by financing your invoices . Factoring invoices provides your company with the needed funds to cover operational expenses and growth opportunities – and reduces the worries created by slow paying customers.

One major advantage of factoring is that it’s easier to obtain than most conventional solutions. The most important requirement is that your tool and die company needs to work with customers that have solid commercial credit. It’s OK if they pay slowly, provided they pay reliably. Aside from this, your company needs to be clear of tax problems, legal problems and the like. This makes it an ideal solution for tool and die companies that cannot get other types of financing because they lack conventional collateral.

Factoring invoices is a great financing solution for tool and die companies that have good potential, but are constrained by cash flow problems created by slow paying customers.

Although the automotive industry went through a very difficult time during the last recession, things are starting to normalize for most companies as sales pick up and things move forward. One thing that has remained a challenge though is cash flow. Companies in the industry still pay their invoices slowly, sometimes taking as much as 70 or 80 days to pay. This places a substantial burden on small automotive supply companies that have to cover all the ongoing expenses while waiting for invoice payments.

One strategy that companies use to alleviate this problem is to offer a discount to their customers in exchange for a quick payment. Offering a 2% invoice discount for a payment in 10 days is common. While this can help, it doesn’t always solve the problem because customers may opt out of early payment at any time. Or worse, they may take the discount and still take more than 10 days to pay.

Another strategy is to use business financing to cover current expenses. This relieves the pressure from slow paying clients by providing the needed cash flow.  One solution that has been gaining traction recently is factoring. Manufacturing and supply companies can use factoring to accelerate their revenues from invoices that are paying slowly. By accelerating revenues you can obtain predictable cash flow that allows you to better manage and grow your company.

The premise for factoring financing is fairly simple. A financing company advances funds using your slow paying accounts receivable as collateral. The transaction is settled once your customers pay their invoices in full.  It’s common for companies to factor a portion of their accounts receivable on an ongoing basis, creating a constant flow of funds.

Qualifying for invoice factoring financing is relatively easy. To qualify it’s important that your company have customers with solid commercial credit. This is important because the invoices to them act as collateral. Additionally, your company should not have any serious legal or tax problems.

Most machine shops tend to be very cash flow intensive companies. They have to handle purchase orders, pay suppliers, handle payroll and collect from clients. All these events have to happen with the right timing for the business to be successful. And usually, timing is very tight. And unless the company is well funded, this means that the company is very sensitive to late client payments. For example, a client delay in a payment can trigger a chain reaction of events that leads to missing supplier payments or delaying payroll.

This problem can easily be solved with business financing. Unfortunately, getting financing in the current economic environment is very difficult. Few institutions are willing to provide business loans or lines of credit to companies that can’t provide sufficient and substantial secondary collateral. Aside from having substantial assets, companies need to show impeccable financial statements, a strong management team and a solid business plan. Few small or midsized machine shops can meet these requirements – putting a business loan out of the reach of most.

A second alternative is to ensure that client payments are always on time, or ahead of schedule. While coaxing clients to pay quickly can be difficult, you can accomplish a similar result by financing your invoices with using factoring financing. Invoice factoring provides you an advance on your invoices, providing the funding you need to meet expenses and complete projects. The transaction is settled once your client actually pays the invoice.

Since factoring provides a predictable and accelerated payment stream, your company is usually in a better position to take on new clients and projects. When used correctly, accounts receivable factoring can help a company grow.

In general, factoring is much easier to obtain than a business loan. To qualify for it, your clients must be credit worthy companies, and your business must be free of liens and encumbrances. Thanks to the current difficulties in getting conventional funding, invoice factoring has been gaining traction in becoming a mainstream source of funding.

The pallet manufacturing and distribution industry is very competitive. Whether you are manufacturing pallets, distributing them or both – managing income and expenses can be very challenging. You have to work with suppliers that demand quick or immediate payments. At the same time, your clients want to pay invoices in 30 to 60 days. Pallet manufacturing and distribution companies that cannot manage their income and expenses soon find themselves with cash flow problems.

Problems usually start when a client starts taking a little longer to pay their invoices, forcing you to dip into capital or to delay payments to your owns suppliers. If left unchecked, this situation can snowball into a major problem that threatens your company.

There are a few ways to manage this problem. One alternative is to try and negotiate delayed payments to your suppliers while trying to obtain quicker payments from your clients. Although worth a try, this type of juggling seldom works for the long term. A second alternative is to get business financing from an institution.

This can be a good alternative for larger companies who can show substantial assets and provide solid financial statements. Although qualifying for a business loan is not easy – business loans are usually available to well managed larger firms. But what can small or midsized firms do?

A better alternative may be to use factoring financing. Invoice factoring solves the dilemma of slow paying clients by providing an advance against their invoices. This quick payment provides the firm with the funds they need to meet expenses and grow the business.

Factoring has a number of benefits. It provides the company with stable and predictable cash flow, which smooths operations and planning. Furthermore, accounts receivable factoring (as it’s commonly called) is fairly easy to obtain. The biggest requirement is that the invoices you finance have to be from credit worthy commercial clients. Additionally, your company needs to be free from legal or tax problems or encumbrances.

Qualifying for factoring is relatively easy which makes it an ideal solution for small and medium sized clients whose biggest problem is that they cannot afford to wait to get paid by clients.

It’s not unusual for small and growing manufacturing companies to have some cash flow problems. Most of them stem from the fact that there is a delay between delivering your products and actually getting paid for them. This delay can last from 30 days and go up to 90 days and is a common industry practice.

The problem is that few manufacturing companies can wait that long to get paid. They have a number of current expenses that must be paid for – rent, supplies, electricity and salaries. The discrepancy between dollar inflows and outflows can cause major headaches to manufacturing company owners.

Getting clients to pay quickly is one possible way to fix this problem. It seldom works though. Most of your clients actually need to delay payments themselves to keep their cash flow straight. Another alternative is to use business financing to bridge the gap.

Most company owners will try and use a business loan to solve this problem. Although business loans can have several advantages, conventional loans tend to lack the flexibility needed to solve this problem. Furthermore, qualifying for a business loan can be a daunting task that requires weeks or months of work. Your lending institution will likely require that your company been in good financial health, have solid assets and have seasoned executives.

There is another solution that may work better than a small business loan. It’s designed to specifically reduce the gap between outflows and inflows – it’s called invoice factoring. Invoice factoring uses a financial intermediary (a factoring company) to finance your invoices while waiting for your client to pay. This strengthens your cash flow providing the liquidity you need to meet current expenses and tackle new orders.

Since your invoices are a liquid asset, most factoring companies buy your invoices outright. Because of this structure, they make most of their funding decisions based on the creditworthiness of your client. This enables you to leverage the creditworthiness of your clients and use it in your favor. Most small companies whose biggest assets is a roaster of good (but slow)paying clients can usually benefit from factoring.

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Learn about factoring in Louisiana