The Benefits of Invoice Financing in the Manufacturing Sector

If your business is in manufacturing, you may find yourself experiencing similar cash flow management challenges as other small businesses. While there are a number of different solutions for accessing and managing cash flow, Invoice Finance offers many benefits and is uniquely suited to the manufacturing sector.

The Basics of Invoice Financing

Invoice Finance is a financial solution that allows businesses to access the cash they are owed tomorrow today.

It enables small businesses to leverage unpaid invoices that have been issued to customers as collateral to access immediate injections of cash. A third party finance provider provides up to 95% of the value of the outstanding invoices upfront with the remaining being provided once the invoices are settled, less any pre-agreed fees.

It allows businesses to utilise the working capital otherwise locked up in invoices to sustain ongoing operations, invest in growth and meet gaps in cash flow.

Why the Manufacturing Sector Is Suited for Invoice Financing

The manufacturing sector is uniquely positioned to benefit from invoice financing due to several inherent characteristics of the industry.

1. Long payment cycles

It is not atypical for a manufacturer to have to deal with extended payment terms. This can tie up valuable capital for long periods of time and hinder both operational agility and growth opportunities.

With Invoice Finance, the gap between invoicing and payment is bridges ensuring more steady and predictable cash flow. 

2. Impact of seasonal fluctuations

It’s not just the manufacturing industry that can be subject to seasonal fluctuations in demand. But it is certainly a common feature of the sector. Fluctuations in market demand can cause uneven cash flow throughout the year and make a business’s challenge of maintaining enough working capital to thrive more difficult.

With Invoice Finance, there’s flexibility to utilise this solution during lean periods and more efficiently convert outstanding invoices into immediately available working capital.

3. High working capital requirements

Manufacturing requires significant upfront costs. Apart from the business-standard overhead costs and expenditure on facility and labour, there are also costs of raw materials, recruitment and machinery maintenance.

Invoice Finance alleviates a lot of the strain on working capital and cash flow by allowing for access to funds tied up in accounts receivable.

4. Growth opportunities are investment heavy

Rapid and sustained growth in the manufacturing sector often requires substantial investment in production capacity, technology and equipment and personnel. 

To be able to react to opportunities in the market to grow, manufacturers need enough access to sufficient working capital to remain agile. Invoice Finance provides this ability by leaving control of access to owed cash in the hands of the business allowing you to seize growth opportunities without being constrained by the limitations of cash flow.

How the Manufacturing Sector Benefits From Invoice Financing

Improved Cash Flow

By using the otherwise locked up value of unpaid invoices, manufacturers can maintain control over a steady stream of working capital even when there is a delay between production and payment.

With improved cash flow and immediate access to capital, manufacturers can meet their operational expenses, invest in growth and be agile in the face of seasonal fluctuations in demand.

Efficient Resource Allocation

Manufacturers using Invoice Finance to smooth over gaps in cash flow can better allocate their finite resources more efficiently.

When it comes to maintaining or replacing equipment and machinery, purchasing necessary materials, and paying for the required labour to keep production moving, having control of how a business allocates resources can make all the difference.

Flexibility in Operation

Without any flexibility in operation, it can be difficult for manufacturers to pivot accordingly when diversifying products or meeting fluctuating demand.

Invoice Finance allows manufacturers to tailor their access to working capital to suit the specifics of their individual needs or market conditions. The greater flexibility in operation a manufacturer has the greater a business’s ability to succeed.

Speedy Access to Funds

Traditional business loans and other conventional forms of financial solutions can take time during the application process and beyond. This can impact a business’s ability to access the working capital they need when they need it.

Invoice Finance allows businesses to access funds in as little as a day. Unlike business loans and bank-provided funding, this ensures manufacturers can also respond to unexpected opportunities or delays in customers’ payment.

Mitigated Credit Risk

Manufacturers face higher exposure to bad debt and credit risk by outsourcing the responsibility of collecting payments and expediting access to the capital owed to them.

With more risks and delays inherent in the manufacturing sector, Invoice Finance offers unique benefits for otherwise exposed manufacturers. 

No Debt and No Collateral

Invoice Finance is not considered to be a loan and therefore is more transactional than it is taking on debt. For small businesses and manufacturers, this can be an important consideration for maintaining credit ratings, ensuring there is no undue financial pressure and maintaining healthy finances. 

With no need for collateral as security either, small manufacturers aren’t required to use assets, such as a house, as collateral.  

Looking for Invoice Finance? Contact ScotPac Today

Invoice Finance offers manufacturers a unique working capital solution for businesses grappling with cash flow challenges. By leveraging their outstanding invoices, manufacturers can unlock immediate cash due to them, optimise working capital, and navigate the complexities of the sector with greater ease. 

ScotPac offers small businesses, including manufacturers, tailored financial solutions to ensure access to the working capital needed, when it is needed. 

Our lending specialists across Australia and New Zealand currently support over 8000 businesses and fund $27.3 billion invoices annually. So if you’re looking for the best financial solution for your business, contact ScotPac today.