One of the biggest challenges that manufacturing businesses come to face would have to be their receivables. It does not come as a secret that credit sales comprise of a huge chunk in customer orders and although they still translate to assets, it does not necessarily mean liquid currency. Trade receivables can harm a company’s liquidity when it traps cash into invoices making it unavailable for immediate use, worse when the customer defaults. One of the more successful solutions to such dilemma happens to be in the form of Single Invoice Factoring. But what is it about?
Single Invoice Factoring allows manufacturers to advance the value of their receivables even before their owing customer makes the payment or before the credit sale matures. In such a scenario, the company chooses a particular invoice, oftentimes one with significant value and which covers the amount of a particular need, then factors it out. The provider called a factor shall then provide for an advance of the invoice’s value, which can range between 80-95%, in exchange for the right to collect against it. The remaining 5-20% shall be released only upon the customer’s full payment. The fees shall be deducted from such remainder.
Since many buyers would opt to defer their payments until goods are delivered and/or resold, this helps in ensuring that cash flows still remain on the positive side of the spectrum further strengthening the entity’s liquidity.
Apart from the immediacy of single invoice factoring where it can provide for the release of cash in as fast as a day’s time, it also brings manufacturers a number of other benefits. For one, it is not a debt. Companies need not worry about damaging their credit score or adding more obligations to the pile. Second, it hastens the receivable to cash turnover. It frees the locked up cash thus enabling cash flows to lie on the good side as mentioned earlier. Third, the collection burden and all tasks related to it shall be passed on to and borne by the factor. This relieves the company of such responsibility allowing it to focus on other aspects of operations, particularly those that bring more profit to the business.
And since Single Invoice Factoring banks more on the creditworthiness of the customer to whom the invoice is attached to, even struggling entities or those with a not so sterling credit history can apply for and make use of it without fuss.