Invoice Factoring for Manufacturing Businesses: Accelerating Cash Flow from Net-60 Clients

Bridging the Manufacturing Cash Gap

Manufacturing creates a fundamental cash flow challenge: you purchase raw materials, pay labor, and ship finished goods—but customers don't pay for 30, 60, or even 90 days. This gap strains working capital, especially for growing manufacturers.

Invoice factoring converts receivables to immediate cash, eliminating the wait for customer payment.

How Manufacturing Factoring Works

You ship products and invoice your customer. Instead of waiting 30-60 days for payment, you sell the invoice to a factoring company. They advance 80-90% immediately, then collect from your customer. When paid, you receive the remaining balance minus the factor's fee.

Manufacturing Factoring Advantages

Factoring particularly benefits manufacturers:

• Immediate cash for raw material purchases
• Ability to take on larger orders without cash constraints
• No debt on balance sheet (you're selling assets, not borrowing)
• Approval based on customer credit, not just yours
• Grows with your business—more invoices = more available funding

Factoring Large Customer Accounts

Large customers often demand extended payment terms—Net 60 or Net 90 is common for manufacturers selling to major corporations. These accounts are excellent for factoring: creditworthy customers, predictable payment patterns, large invoice values.

Factoring these accounts specifically can fund a significant portion of working capital needs.

Factoring Costs for Manufacturing

Longer payment terms often have lower annualized costs because the fee covers more days. Build factoring costs into your pricing—most manufacturers can absorb 2-3% in exchange for immediate payment.

Selective vs. Full Factoring

Manufacturers can factor all invoices or select specific accounts. Selective factoring lets you factor only slow-paying customers or large invoices, while collecting directly from faster-paying accounts.

Full factoring simplifies administration—all invoices go through the factor—but may cost more if some customers would pay quickly anyway.

Recourse vs. Non-Recourse

Recourse factoring: If your customer doesn't pay, you're responsible. Non-recourse factoring: The factor absorbs losses from customer insolvency (but usually not disputes).

Non-recourse costs more but provides protection against customer failure. For manufacturers with concentrated customer risk, this protection may be valuable.

Choosing a Manufacturing Factor

Look for factors experienced with manufacturing:

• Industry experience: Understanding of manufacturing cycles
• Advance rates: 80-90% typical for creditworthy customers
• Fee structure: Competitive rates for your invoice terms
• Contract flexibility: Selective factoring availability
• Credit services: Customer credit monitoring
• Notification: How they communicate with your customers

Factoring vs. Asset-Based Lending

Both factoring and asset-based lines of credit (ABL) use receivables for financing. Factoring sells invoices; ABL borrows against them.

Factoring may be better for growth stages (easier qualification), specific large accounts, or when you want the factor to handle collections. ABL may provide better rates for larger, established manufacturers with strong financials.

Is Factoring Right for Your Manufacturing Business?

Factoring fits manufacturers with creditworthy B2B customers paying on terms, cash flow constraints from receivables timing, growth opportunities limited by working capital, and margins that can absorb factoring costs.

If your customers pay quickly or you have strong working capital, traditional credit facilities may serve you better.