Factoring for the Manufacturing Industry

Since the turn of the millennium, the manufacturing industry in the US has taken a turn for the worse, and the last economic crunch didn’t help either.

The number of manufacturing jobs decreased by 5.1 million from 2001 to 2012, and 2.1 million of those jobs were because of the US-China trade deficit. But now some experts are calling for an increase in US manufacturing. That can only happen if there’s enough funding. Fortunately you can now turn to factoring for manufacturing companies.

Why Funding Should Be Increased for Manufacturing

There are several proposed reasons why manufacturing should be more concentrated in the US, aside from the usual talk of providing more jobs for Americans.

One reason is that in terms of dollar output per worker, the American worker is still much more productive. US customers also expect quicker delivery, and having the manufacturing done in the US cuts down on the cost of keeping large amounts of inventory. Finally, separating manufacturing from development has proven detrimental to the training and education of company workers.

For all these reasons, funding should be afforded to manufacturing companies. And if banks are hesitant, the factors are not.

Factoring for Manufacturing

The way factoring works for manufacturing companies is easy enough to understand. The manufacturing company often has customers which take their inventory but takes too much time to pay in full. That often leaves manufacturing companies in a cash crunch and why they may need a loan for working capital.

Factors can offer the funding when banks don’t give out loans. Factoring involves the sales of accounts receivable, and the factor advances up to 80% of the value of the receivable to the manufacturing company. The factor is them paid directly by the customer, and when the customer finally pays in full the factor forwards the rest of the payment after it has taken off the advance and its fees from the payment.

Benefits of Factoring

The most obvious advantages of factoring are the ease in which manufacturing companies can avail of this form of funding. Approval for funding is easy to get, unlike with bank loans which has notoriously low approval rates.

The entire loan application process is also slow with traditional loans, but with factoring it may only take a few days to get the approval. This is due to the lack of relevance of the company’s credit. Instead, the creditworthiness of the customers is evaluated.

It only takes a few days to set up the factoring line, and then the advance arrives within a day of submitting the accounts receivable.

The money can then be used for a wide variety of purposes. It can be used to meet payroll, maintenance, manufacturing supplies and expenses, or pay for other debts. You won’t have to worry about the bank calling in a loan, because the funding is not a loan in the first place. As long as your customers pay on time, then you’re all set, and your factor can even help identify which of your new customers are good payers so you won’t have problems.

With factoring, you solve a whole factory of problems altogether.