No matter what product a company manufactures, cash flow is crucial. A continual stream of money will always be needed to buy supplies, pay employees, market products, and fill new orders. Sometimes the flow of funds reaches a dry period, such as when a company is waiting for previous customers to pay their bills. This is when manufacturer factoring becomes a vital benefit that allows the business to continue to produce goods.
Manufacturer factoring is an alternative financing tool that businesses can use to remain healthy and viable in a competitive marketplace. The way it works is that a factor; like Eagle Business Credit, steps in and purchases most outstanding invoices that the manufacturer has. The factor doesn’t loan the money; rather it purchases invoices at a discount and it takes over the responsibility for collecting payment from the manufacturer’s account debtors. In most instances the factoring representative then takes responsibility of collecting the unpaid accounts receivable.
Although there are plenty of times in the course of doing business when this practice is helpful, it is especially so when a factory is really starting to flourish. For example, an entrepreneur might invent a new product such as a solar-powered lawn mower or a vacuum cleaner that senses grime and suctions it up before carpets ever have a chance to get dirty. These unique ideas might initially be met with eye-rolls from others, but if a visionary businessperson moves forward, creates a prototype, shows his or her wares at a tradeshow and stirs up interest, he or she may have just hit the jackpot. The “crazy idea” has a chance to become a reality as long as the inventor can produce the sought after items.
Initially, this creative genius probably has enough money to fill those early orders. Perhaps the factory is housed in a small building, such as a garage, and is capable of fabricating a limited number of lawn mowers or vacuum cleaners. This is all well and good; in fact, it’s wonderful, because word will spread and the orders should come rolling in. While this may seem like a recipe for the ultimate success story, it can also be the chapter where a challenge occurs. If so many orders come in before the original customers have had time to pay their invoices, this can cause a standstill, unless the owner finds a way to generate quick income.
If the business owner decides to use manufacturer factoring, the necessary funds can stream in to finance the next chapter of getting the product to market within 24 hours. With business tools such as this, small businesses can successfully build the profitability of their organizations.