Invoice Finance For Manufacturing Businesses
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What is manufacturing invoice finance?
Manufacturing invoice finance is a type of business finance that allows manufacturers to unlock the cash tied up in unpaid invoices.
It’s designed for B2B companies that operate on delayed payment terms of 30 days, 60 days or 90 days.
Instead of waiting for the payment terms date, invoice finance allows you to receive a percentage of the funds upfront, as soon as the invoice is raised.
How does it work?
It works as follows:
- Credit control – Either your business or your factor chases for payment to ensure the invoice is settled on the due date or before.
- Receive the balance – Once the invoice is paid, you receive the balance, minus your agreed finance costs.
- Invoice raised – You send your customer an invoice on delivery of your product or service, and send an additional copy to your finance provider.
- Receive money – Within 24 hours of the invoice being raised, your funder releases up to 95% of the invoice value to you.
Are there different types to consider?
Yes, there are different types to consider, they are:
- Invoice factoring – Invoice factoring is a full service product that sees the lender release funds against your unpaid invoices and also take on the full credit control process. This means that the lender, known as the factor, will chase payment, and as such, your customer will be aware of the facility.
- Invoice discounting – Invoice discounting works in much the same way as invoice factoring up until the point that an advance is made against an invoice. At this point, things diverge, and you remain responsible for chasing payment. As you chase payment and receive it into your own business bank account, your customer will be unaware of the facility.
- Selective invoice finance – Selective invoice finance, also known as spot factoring, allows you to fund either a single invoice or selective invoices without the need to commit to a full facility. The cost per pound borrowed is higher with these facilities, although that is offset by the flexibility offered.
What are the alternatives to invoice financing for manufacturing businesses?
The alternatives to invoice financing for manufacturing businesses are:
- Revolving credit – This can come in the form of a business overdraft or business revolving credit facility. Both options allow you to borrow and repay funds as needed to support your business operations.
- Secured finance – Secured finance can come in the form of a secured business loan, but another solution is the commercial mortgage. If you own your business premises, or wish to buy them, you could borrow money using a commercial mortgage and repay over anything up to 25 years, meaning you’ll have lower monthly repayments.
- Business loans – A business loan can come in two forms, unsecured business loans and secured business loans. The key difference comes down to whether you offer the lender a charge over a property. Unsecured loans are faster, while secured loans allow you to borrow more money and repay over a longer repayment term.
- Asset finance – When funds are needed to purchase new equipment, machinery or vehicles for your business, asset finance could be the solution. It allows you to acquire the equipment that you need without having to pay the whole cost upfront.
What are the pros and cons of invoice finance for manufacturers?
The pros of invoice finance for manufacturers are:
- It’s flexible – It’s a flexible way to borrow money, and the facility limit can grow as your business does, making sure you always have the support you need, when you need it.
- Saves resources and time – Debt factoring facilities pass on credit control to your factor, taking a time consuming and often awkward job off your hands.
- It improves cashflow – Without a doubt, invoice financing improves cashflow dramatically. By receiving payment for your invoices upfront, your cashflow cycle is accelerated, making it far easier to manage business growth.
- Non-payment risk – If bad debt protection is included in your facility, you get paid even if your customer fails to settle the invoice.
There are a couple of drawbacks to consider:
- There is a cost – While the cost of borrowing is low, there is still a cost to consider, which will impact your profit margins.
- Some facilities are disclosed – As some facilities are disclosed, your customers may be aware that you’re borrowing against your sales ledger. This can be avoided by taking a confidential invoice discounting facility.
Will I be eligible?
If your manufacturing business operates on delayed payment terms of 30 days or more and trades predominantly business to business (B2B), then there is a strong chance that you’ll be eligible.
We’ve helped countless manufacturers secure the funding they need to improve their cashflow and drive their business forward.
If you’re unsure whether you’ll qualify, get in touch with our experts, and we’ll be able to quickly guide you on the likelihood of an application being approved.
What is the best way to secure manufacturer invoice finance?
The fastest, easiest and most transparent way to secure invoice finance for your manufacturing business is through the ABC Finance invoice finance comparison tool.
Our platform switches the process around and has lenders compete to win your business by offering you the best deal.
This competitive environment all takes place on platform without the need for you to talk to each lender. Instead, you sit back, relax and wait for the perfect deal to come in.
Once you’ve found an offer that you’re happy with, you can progress your application in a single click.
Of course, should you need support or want to discuss the offers further, we have a team of experts on hand to talk through the options available and help you choose the most suitable one.
