The pandemic has altered the global economy unlike any preceding event. Supply chain disruptions and dramatically altered consumer spending habits have reshaped the economic landscape. Manufacturing companies serving industries that have thrived through the crisis such as technology, health care and home improvement have experienced sharp increases in demand. On the other hand, those that manufacture components for underperforming industries such as energy, aviation and automotive have suffered greatly. In both cases the ability to effectively solve cash flow problems can keep afloat or sink your manufacturing company.
Through it all, manufacturers are increasingly aware that as the pandemic crisis subsides it will leave fundamental changes in its wake. Manufacturers that anticipate shifting demands and have the financial flexibility to react to changing conditions will continue to thrive and grow. Being financially prepared for any challenge or opportunity that lies ahead is critical to sustainability. As banks continue to restrict credit options to small and mid-size companies, businesses are turning to invoice factoring to boost cash flow and ensure easy access to working capital.
Overcoming the Barriers to Success
Manufactures across the board face similar cash flow problems no matter what industries they serve. Following are the typical cash flow problems that most manufactures need to address along with a brief on how invoice factoring can be used to overcome constraints.
Inventory Forecasting and the Cash Conversion Cycle
The process of calculating the inventory needed to fulfill future orders is based on historic sales data, current conditions and predictive estimates of future orders over a specified period of time. With accurate forecasting, less inventory is needed on hand. This reduces the need to outlay excessive expenses for bulk inventory that just sits idle on a warehouse shelf and is a significant contributor to negative cash flow.
Inventory forecasting has never been more necessary. Idle inventory represents tied up cash and the risk of stock becoming obsolete. Managing an efficient operating cycle improves the more important cash conversion cycle, a working capital metric used to measure the time it takes to convert cash into inventory, inventory into product, and then product back into cash through the sales process. Using AI software to forecast supply and demand as accurately as possible, manufacturers can avoid negative cash flow by minimizing the money tied up in stock, avoiding stock shortages at times of high-demand, and identifying otherwise hidden inefficiencies. Aided with a flexible cash flow solution such as invoice factoring, manufactures can react quickly and efficiently to order stock, pay on time and retain healthy relationships with suppliers to ensure continued supply chain efficiencies.
Production Capacity
The rapidly changing conditions of the global economy plays an important role in determining future production needs for manufacturers – especially during periods of extreme change as has been experience during the pandemic. Extremely high demand for products such as disinfectant gels will undoubtedly change to more normal levels the farther we distance ourselves from the health fears of the pandemic. Suppliers to the airline and restaurant industries will gain a resurgence in demand for their products as social distancing becomes a thing of the past.
Manufacturers need the ability to gear up and gear down to react accordingly to changing demand. Having the liquidity to finance investments in facilities, equipment and trained personnel is critical to adapting to future market demands. Invoice factoring boosts cash flow to provide the financial flexibility needed to invest as needed to respond to business opportunities as they arise.
Extending Customer Credit
To stay competitive, manufacturers typically extend payment terms to their customers. Although this is a great strategy to retain customers’ good will, it plays havoc with your company’s finances and can lead to negative cash flow. Efficient accounts receivable management is essential to maintaining a healthy financial status. Assessing customers’ ability to pay, collecting receivables in a timely fashion while retaining good customer relations, and managing invoice disputes to reach a positive outcome is vital to business success.
Reputable invoice factoring companies provide credit analysis and professional accounts receivable management free of charge. Credit managers conduct due diligence to assess the creditworthiness of customers prior to your manufacturing company committing time and resources to fulfill orders. Meanwhile, trained collection specialists work diligently to improve days sales outstanding. Partnering with an invoice factoring company is a solid financial strategy to boost cash flow and improve credit management.
The Benefits of Invoice Factoring to Boost Cash Flow
Invoice factoring is uniquely different than most custom lending solutions – it is not a loan, it is the practice of selling invoice receivables at a discount in exchange for immediate payment. It’s a simple financial arrangement that creates instant positive cash flow.
Here’s how invoice factoring works:
- Invoice customers for products delivered and send copy invoice to your invoice factoring company.
- The invoice factoring company will verify delivery and transfer up to 90% of the invoice face value directly into your account within 24 hours. The balance owing is held as a reserve.
- Your customer pays the full invoice amount to the invoice factoring company.
- The invoice factoring company releases the reserve and transfers the balance owing to your account.
- A small fee is deducted.
Following are the extensive benefits of invoice factoring:
- Easy Qualification: Unlike dealing with a bank, funding is simple and fast to qualify for. If your manufacturing company deals with creditworthy customers, you are well on your way to first funding and establishing positive cash flow.
- Fast Funding: When working capital is needed to support operations or invest in growth opportunities, it is generally needed sooner rather than later. Invoice factoring converts invoices into cash within hours to boost cash flow. This enables manufacturers to pay bills on time, pay emergency costs such as equipment repairs or an unexpected tax bill, and expand production facilities to meet changing demand.
- Reliable and Predictable Cash Flow: Conventional accounts receivable management forces manufacturers to wait 15 days, 30 days or more to receive customer payments. This creates uncertainty as to when funds become available and gaps in cash flow that could lead to negative cash flow. With invoice factoring, payment is predictably immediate and reliable making financial planning simple to perform.
- Funding Increases as Your Business Grows: The more invoices your manufacturing company issues to creditworthy customers, the more funding becomes available. Unlike bank financing, there are no loan covenants to restrict how you use your money. Pay bills, invest in growth or build cash reserves – how you manage your money is entirely up to you.
- Easy to Manage: A user friendly online account management portal provides full control of your finances. Real time monitoring of all transactions, full transparency to view balances and credit limits, plus easy reporting capabilities provide an easy to manage funding solution to boost cash flow and make your life as a business owner easier.
- Superior Customer Service: A dedicated accounts manager is assigned to coordinate fast onboarding, streamline services and respond quickly to any questions or issues throughout the life of the relationship.
Adapt Efficiently to Change with Invoice Factoring
Recent disruptions to international trade and global supply chains have fundamentally changed manufacturing. Increased automation and a shift to smaller localized factories will become more standard as the pandemic subsides and a new normal takes hold. As manufacturing companies look to remain viable or to make investments to adapt and move into new markets, efficient cash flow management is critical to ensure sustainability. The ability to maintain reliable supply chain resources while able to react quickly to changing market conditions will have a significant impact on determining the future success of your business. Invoice factoring is an easy to manage, reliable and flexible funding solution to boost cash flow. Uniquely different to other custom lending solutions, invoice factoring does not incur debt, does not have regular monthly fees, nor is it governed by restrictive loan covenants. It is the idle funding solution to boost cash flow and support manufacturing companies through the varying conditions of a changing global market. Research alternative lenders to find the right financial partner for your business, one that will put your goals first and never lose sight of the end game to solve cash flow constraints.
For more information about the benefits of custom lending solutions such as invoice factoring to improve working capital management and unlock hidden cash, visit eCapital.com.
ABOUT eCapital
At eCapital, we accelerate business growth by delivering fast, flexible access to capital through cutting-edge technology and deep industry insight.
Across North America and the U.K., we’ve redefined how small and medium-sized businesses access funding—eliminating friction, speeding approvals, and empowering clients with access to the capital they need to move forward. With the capacity to fund facilities from $5 million to $250 million, we support a wide range of business needs at every stage.
With a powerful blend of innovation, scalability, and personalized service, we’re not just a funding provider, we’re a strategic partner built for what’s next.
