Last Updated on August 24, 2021
Earning a top position among manufacturing companies is becoming increasingly difficult due to the rapidly changing landscape of the manufacturing industry. Amid the many challenges facing manufacturers today are employee skills gaps, cash flow hindrances, and keeping up with innovation.
Here at altLINE, our team specializes in invoice factoring solutions for manufacturing companies. Below we look at the top three challenges facing companies as they strive to prosper in the increasingly competitive manufacturing industry.
What is Manufacturing Factoring?
Manufacturing factoring is the process of selling a manufacturing company’s outstanding invoices to a third party (factoring company) in exchange for cash up front. For example, let’s say the manufacturing company sends invoices to its customers on 60-day payment terms. Instead of waiting 60 days for the customer to pay, they can sell their receivables in order to speed up the payment cycle and put cash in their pocket.
How Manufacturing Factoring Works
When a manufacturer factors its invoices, the factor company advances them up to 90% of the invoice face value. The factoring company then collects payment directly from their customers. Once the payment is collected, they release the remaining 10% to the manufacturer, minus a small factoring fee.
Pros and Cons of Manufacturing Factoring
Pros of factoring:
- Immediate access to cash for your business
- Easier and faster approval than traditional bank lending
- No impact on your credit score
Cons of factoring:
- Reduced profit margins for your business
- Hidden costs and fees from bad factoring companies
Why Factoring is a Good Fit for the Manufacturing Industry
Invoice factoring can make a big impact in a short amount of time. It is particularly effective because it can generate cash quickly with little impact on the customer relationship. Since a factoring company advances funds against outstanding invoices, customers do not feel pressured to pay invoices more quickly than originally stipulated.
A manufacturer should consider their customer’s credit quality, payment history, and longevity prior to using invoice factoring to address cash flow problems. Factoring companies will use those criteria to assess a manufacturer’s fit for invoice factoring. Find out more about which type of financing is best for your business.
Challenge 1: Skills Gap
Since the end of the recession in 2009, job postings in the manufacturing industry have increased 280% while the percentage of people hired has risen at a small fraction of that rate. The Wall Street Journal and other sources point to a skills gap to explain why thousands of manufacturing jobs were unfilled despite the number of open positions being the highest since 2001. Specifically, today’s manufacturing jobs require a host of technical skills which applicants lack.
While manufacturers do not have direct control over the statistics above, they can meet the skills gap challenge head on with a strong commitment to robust on-the-job training. Employers must be more willing to hire motivated job candidates who display basic proficiency for a manufacturing position and a strong aptitude for learning. Then, they must follow through by keeping employees engaged in the training process.
Challenge 2: Cash Flow Problems
Cash flow problems can present a serious threat to manufacturers, especially when they arise during peak seasons. Many factors cause cash flow problems, but there are several reasons why manufactures find themselves short on cash. The majority of these problems relate to slow paying customers or the receipt of an unexpected large order that becomes difficult to fill.
The good news about cash flow problems lies in the wide array of options to resolving them. The key to conquering cash flow problems is to adopt one or more of the following strategies:
- Screen new clients more carefully before extending payment terms
- Offer discounts or other incentives to customers who pay in advance
- Strengthen your collections efforts to obtain payment from delinquent clients
- Utilize invoice factoring to revitalize your cash flow
Challenge #3: Increased Automation and Innovation
The benefits of automation are undeniable. Increased efficiency, a reduction in errors, and faster production comprise three of the most impressive benefits offered by automation. However, automation requires investment and a culture of innovation. Manufacturers must be ready to address these potential growing pains associated with the introduction of automation:
- Resistance to change exhibited by long-time employees
- The need for increased emphasis on training of employees to oversee complex automation tools
- The possibility that they will ultimately need to reduce the number of full-time employees due to automation
Successfully introducing automation to an organization requires an employer be prepared for potential employee resistance and to develop a more robust training platform. Additionally, manufacturers should highlight the ways that automation will benefit each individual employee. If employees see how they can benefit from automation, they will be more accepting of innovative changes.
What You Need to Get Started
So what does your manufacturing company need to get started with invoice factoring? Here are some things the factoring company will ask you :
- Who are your typical customers?
- How much do you typically sell per month?
- How long does it take your customers to pay?
- Do you currently have any financing or loans in place?
- What is your expected monthly factoring need?
Here at altLINE, our team understands the industry specific needs of our clients. Our manufacturing clients rely on us to know their business’s unique challenges.
Contact us today to discuss invoice factoring for your manufacturing company.
Grey is the Director of Marketing for altLINE by The Southern Bank. With 10 years’ experience in digital marketing, content creation and small business operations, he helps businesses find the information they need to make informed decisions about invoice factoring and A/R financing.