January 9, 2023

Manufacturing Factoring Complete Guide

The most successful manufacturing companies have a firm grasp of their finances. This includes a sound understanding of cash on hand and how to maintain positive cashflow throughout the year.
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The most successful manufacturing companies have a firm grasp of their finances. This includes a sound understanding of cash on hand and how to maintain positive cashflow throughout the year.

Manufacturing factoring is one of the best ways for companies in this sector to improve cashflow, thus allowing them to stay current with expenses and take advantage of opportunities for expansion. Rather than wait for invoices to be approved and paid by customers, factoring provides fast access to accounts receivables. 

In this guide, we share everything you need to know about factoring services for manufacturing and how to take full advantage of its benefits. 

What is Manufacturing Factoring?

There’s a lot of money to be made in the manufacturing sector, but for many companies, there’s a big challenge standing in the way: cashflow. 

Manufacturers are faced with many expenses including equipment, materials, supplies, payroll, and the overall cost of production. Furthermore, all of these expenses are generally procured before being paid for a product. 

Fortunately, there’s a solution to this problem: manufacturing factoring. With this, a factoring company advances you the full amount of your invoice, minus a fee, so that there’s no delay in payment. From there, your customer pays the factoring company based on the original terms of your agreement.

When compared to other options — such as a bank loan or private investment — invoice factoring comes out on top as you’re not taking on debt or giving away equity. 

How Do Factoring Services for Manufacturing Work?

Before you do anything, make sure that manufacturing factoring aligns with your current financial circumstances and future goals. Once that checks out, you’re ready to tackle the process of getting started.

Here’s how you can expect the process to unfold.

Step 1:

Provide your customers with a service based on the terms and conditions of your agreement. 

Step 2:

Share your invoice(s) with your factoring company. You can do so one at a time, as they become available, or in bulk.

Step 3:

Receive up to 95 percent of the invoice value on the same day it’s submitted. Money will be deposited directly into your bank account. 

Step 4:

Your factoring company will manage the collection process based on your agreed-upon terms.

Step 5:

Upon receiving payment, your factoring company returns the five percent holdback minus a small fee for their service. 

Steps Of Factoring Services For Manufacturing - REV Capital

How Manufacturers Benefit From Factoring

With so many benefits, it’s no wonder why a growing number of manufacturers are turning to factoring to manage cashflow. Here are some of the top benefits.

Fast Cash for Your Business

When you need money for your business, it’s safe to assume that you want it now. You don’t want to waste time on a lengthy application and approval process. With factoring, it’s possible to receive funds for unpaid invoices within one business day

Greater Chance of Approval

When compared to a bank loan, factoring provides a greater chance of approval in a shorter period of time. This is because a factoring company doesn’t take your company’s finances into consideration. They’re only concerned about the creditworthiness of your customers since these are the entities they’ll be collecting from. 

Limited Risk

A bank loan requires collateral, which puts it at risk in the event that you default. Invoice factoring is unsecured, so there’s no risk of a valuable asset being seized. 

Highly Accessible

Once you set up an account with a manufacturing factoring company, you can submit invoices online and receive payment within hours. It doesn’t matter if you submit one invoice or several, the process is simple and time-efficient from start to finish.

The Difference Between Manufacturing Factoring and Other Types of Business Financing

For many years, business bank loans, lines of credit, and business credit cards were the most common forms of financing. While all of these have their place in the manufacturing world, invoice factoring continues to grow in popularity. 

Let’s compare how manufacturing factoring stacks up against other types of business financing.

Business Loans

You can use a business loan for everything from new equipment to inventory to marketing campaigns. These are available through both online and local banks. Here are some of the areas in which a business loan falls short of factoring:

  • Eligibility requirements: There are strict eligibility requirements for securing a business loan. This makes it difficult for small and/or growing manufacturers to qualify. 
  • Time to approval: It can take several weeks or longer to receive a decision on a business loan application.
  • Interest: With a loan, you pay interest every month along with the principal.

Lines of Credit 

A business line of credit is similar to a credit card. You can borrow money up to a predetermined amount based on your creditworthiness. As you pay back your line of credit, you can use the money again. Some of the pitfalls include:

  • Eligibility requirements: Much the same as business loans, it’s often a challenge to secure a line of credit. It can also take several weeks to receive a decision. 
  • Interest: The more money you borrow the more money you have to repay, with interest. 
  • High fees: If you miss payments or make late payments, you’ll be responsible for high fees to regain good account standing. 
Lines Of Credit - REV Capital

Business Credit Cards

When compared to business loans and lines of credit, it’s typically more time efficient to secure a credit card. You can apply online, and if approved, begin using your card almost immediately. However, there are some disadvantages: 

  • Easy to misuse: It’s easy to overspend with a business credit card. 
  • High interest rate: Most business credit cards have a high interest rate. If you carry a balance from month to month, expect to pay a finance charge. 
  • Security risks: Fraudulent charges from unauthorized use and stolen credit card numbers are always a concern. 

Before you make a final decision on where to secure financing, carefully compare the pros and cons. You may soon realize that factoring is the best path forward. 

What to Look For in a Manufacturing Factoring Company

By now, you know that factoring is becoming standard across the manufacturing industry. For that reason, there’s no shortage of companies providing this service. Your goal is to choose the one that’s best for your company based on the factors you consider most important to your success. 

Here are some questions you can answer to bring clarity to the decision-making process.

1. Does the Factoring Company Work with Your Type of Company?

Not all manufacturing companies are the same. Some factoring companies may not work with every industry. Check on this before you get too deep into the selection process.

2. What Advance Rate Do You Qualify For?

This is the amount of money your company receives upon submitting an invoice for factoring. Advance rates can reach as high as 95 percent of your invoice value.

3. What Are the Factoring Fees?

The advance rate is important, but factoring fees must also be considered. Understanding this upfront allows you to make an informed decision. 

4. Is There a Minimum?

A minimum is an amount you must factor in every period. A period is generally defined as a month, quarter, or year. The minimum qualification for manufacturing factoring typically falls around $10,000, but this is not the case with all factoring companies. 

Don’t assume that you know which factoring company is best. Compare your options, using the questions above, so that you make the right choice the first time. 

Are Factoring Services for Manufacturing Right for Your Business?

As a general rule of thumb, if you’re struggling with cashflow there’s a good chance that a factoring service can help. Here are three points of consideration to help you decide if it’s a viable solution:  

  • Service completion: In order to receive funds through invoice factoring, you must have invoices to share. Review the past six to 12 months to determine how many invoices you’ve sent and how quickly you’ve collected on them. 
  • Business structure: In short, you must be a registered business that sells a service or product to other businesses. 
  • A need for funds: If you’re using a factoring service, it should be to gain fast access to funds for expenses such as payroll and inventory. 

Adding to the above, here are some reasons why invoice factoring may be the right strategy:

  • You want and need cash now, not when your customers decide to pay. 
  • There are downtimes throughout the year, such as during a specific season. 
  • You need access to working capital to grow your company. 
  • You don’t qualify for a business loan or business line of credit.

If one or more of these aligns with your situation, manufacturing factoring deserves your full attention. 

Factoring Services For Manufacturing Business - REV Capital

The Manufacturing Factoring Application Process

The manufacturing factoring application process varies from company to company, but it’s generally straightforward and simple to understand. At REV Capital, there are only a few things required to process your application:

  • Information about your business: Share information about your business, such as its name, physical address, and annual revenue. 
  • Basic details about your invoices: Payments terms and periods, as well as any other details related to your invoicing process.
  • Recent bank statements: By reviewing recent bank statements, it’s easier to determine if you’re a good fit for factoring. 

Once you complete an application and are approved for factoring, you can then submit invoices online as necessary.

When Can My Company Start Invoice Factoring?

Are you ready to get started with invoice factoring? Understanding the minimum qualifications for factoring can help you decide if now’s the time to take action. Here are the minimum requirements for setting up an account with REV Capital. 

  • B2B service provider
  • Any size, 10K - 10M in revenue
  • Clear audit trail
  • Creditworthy debtors
  • No consignment sales
  • No liens on A/R
  • No progress billing
  • No pre-billing
  • No warranties
  • North American customers

Even if you don’t meet some of these minimum qualifications, you may still want to apply. Depending on the circumstances, there could be a workaround that allows you to use factoring. 

Factoring with REV Capital

At REV Capital, every decision begins and ends with you in mind. As the leading provider of full-service factoring services in Canada and the United States, we know what it takes to provide every client with a high level of service. 

In addition to factoring, we also support businesses with invoice management, credit underwriting, and collection services. 

Our mission is to reinvent factoring, and we strive to work toward this goal every day of the week. 

For more information or to get started, complete an online application or contact us via phone at 855-489-0310

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