Seasonal manufacturing can leverage factoring to weather any storm
Running a seasonal manufacturing business isn’t for everyone. You likely experience an overwhelming rush of demand one part of the year, and a sort of peace and quiet for the other times. In those times, it might get a little too quiet — especially when it comes to your bank account.
For the manufacturing industry, these seasonal differences require a lot of prep work, budget forecasting, and a clear understanding of when the cash is coming in and going out of the business. Invoice factoring can help prevent such extreme shifts. By selling your unpaid invoices and collecting the majority of that payment up front, you can gain predictable cash flow — even in the off-season. Need a quick refresher? Follow the invoice factoring essentials here.
No matter the season, here are four key ways that factoring can help your manufacturing business:
1. Opportunities blossom for seasonal manufacturing companies
When a new business starts to bud (pun intended), it may mean that you’re selling faster than you’re receiving payment. This may be okay for a little while, but when it comes to offering payment terms (like 30, 60, or 90 days), the manufacturer has to figure out how to continue production while awaiting income. And if that busy season is significantly shorter than the rest of the year when there are more expenses than sales, the cash inflow might not be able to keep up. Even successful businesses can then become cash strapped.
How does factoring help with seasonal manufacturing?
Factoring eliminates this by paying the majority of an invoice in ‘advance’ so that essential bills can be paid to keep production volume high. Instead of waiting for customers to pay based on the terms, you can get cash instantly and keep your operations moving forward.
2. Avoiding a cash flow drought
As the busy season continues, it’s hard to imagine there will ever be a moment’s rest. But now’s the time to prepare for the end of summer when orders may start to drop off. To proactively combat that from happening, you can create motivating customer incentives to keep the cash coming in at regular intervals well into the off-season.
For example, instead of requiring 30 days to pay, you could offer clients 90-day payment terms, or the ability to pay in installments. This could be attractive to clients who want to take advantage now, rather than waiting for later in the year (or even next year) to make a purchase or a reorder.
How does factoring help?
Factoring can allow manufacturers to offer their customers more preferable terms. Even if you extend your payment terms to the customer, you could still factor that invoice and collect in advance. Both you and your customer benefit.
3. Watching the colors (and POs) change in seasonal manufacturing
When a seasonal business scales down operations into the off-season, this can include making tough decisions such as laying off employees or offering deep discounts on valuable products — which most owners would like to avoid.
That’s why manufacturing business owners need to find ways of balancing cash flow across the whole year — with enough to sustain operations during the ‘down’ months so they’re ready with the right resources to deliver during peak times. Being able to maintain operations more steadily throughout the off-season means that any transitional periods are made much more manageable.
How does factoring help?
Factoring can help you pay fixed costs such as employee salaries and benefits during the slower times without having to make sacrifices to savings or other expenses. It can give you more predictable cash flow when you’re not sure if customers will come calling. And it provides you with the flexibility to factor invoices as needed, rather than having to commit to a longer-term business loan (which may not even get approved).
4. Surviving & thriving in slow times
Now with more consistent cash flow in the off-season, it means that progress can be made even in these ‘slow’ times. Have a special project you’ve needed to tackle? Need to make equipment repairs or upgrade a piece of outdated machinery? Want to beef up your marketing and advertising?
All of these can be achieved during the off-season while you have a little more time on your hands. With an enhanced production line during a greater portion of the year — and subsequently improved cash flow — you’ll be better prepared to scale back up for a new year ahead.
How does factoring help?
Factoring can minimize the stress and uncertainty in the off-season, especially if your customers have also hibernated on payments. Unlike traditional loans that require a monthly payment over a set period of time, factoring can be applied for only certain parts of the year as needed. So whether a business needs a year of factoring, or just a season here and there to keep cash flowing in, the right arrangement can often be found.
Interested in seeing how one seasonal manufacturing company got the most out of invoice factoring? See the case study with Ridgeline Manufacturing and learn how they made the most of this financing solution.