Invoice Factoring for Machine Shops

Approval time: Bank loans can take weeks or months to process, while invoice factoring can be approved in as little as 24 hours.

Credit requirements: Banks may have strict credit requirements, making it difficult for some machine shops to get approved. Invoice factoring relies on the creditworthiness of your clients, not your business.

Collateral: Bank loans may require your machine shop to provide collateral, while invoice factoring uses your unpaid invoices as collateral.

Repayment: Bank loans require repayment with interest over time, while invoice factoring is not a loan and doesn’t require repayment. Instead, the factoring company collects payment directly from your clients.

Rising costs: The cost of raw materials, labor, and overhead expenses is on the rise, making it challenging to maintain profit margins.

Machine breakdowns: The breakdown of machines, especially when you’re on a tight deadline, can result in the loss of contracts or expensive machine repairs.

Equipment and maintenance costs: Machine shops require expensive equipment and regular maintenance to keep everything running smoothly. These costs can take a toll on your cash flow.

Inconsistent payment schedules: Many machine shop customers pay on net-30 or net-60 terms, which can create cash flow gaps as the shop waits for payment.

Demand for faster turnaround times: Sticking to the schedule can be a challenge when clients make last-minute changes to their orders or when machines break down unexpectedly. To reduce delivery time, various factors need to be taken into account, such as design, programming, inventory control, personnel, and automation. However, keeping up with the latest design software can be expensive and may require additional funding that wasn’t budgeted for.

Invest in Quality Equipment: Your equipment is the backbone of your business, so investing in quality equipment is vital to ensure that you produce high-quality products and remain competitive.

Keep Your Production Efficient: To keep your production running smoothly and efficiently, it is important to have a good system in place. This includes setting realistic production goals, keeping your equipment well-maintained, and training your employees on best practices. It is also important to stay current with industry trends and technological advancements.

Manage Cash Flow: Cash flow is the lifeblood of any business, so it is important to manage it effectively. Keep track of your expenses, review your financial statements regularly, and consider financing options such as invoice factoring to help maintain a healthy cash flow.

Equipment financing: This financing is specifically designed for purchasing new equipment or upgrading current machines. However, equipment financing often requires a down payment and can have high-interest rates.

Asset-based lending (ABL): ABLs are secured loans that use the machine shop’s assets, such as inventory and accounts receivable, as collateral. Although this financing option can be an option for businesses with lower credit scores, ABLs can come with high-interest rates and additional fees.

Merchant cash advances (MCAs): MCAs provide cash upfront in exchange for a percentage of future credit or debit card sales. MCAs can be useful for machine shops that rely heavily on card sales, but they come with high-interest rates and fees.

Invoice factoring: Factoring is an excellent option for machine shops that need quick access to working capital. This alternative funding method involves selling outstanding invoices to a factoring company, which pays the machine shop upfront for their completed work. Factoring companies don’t typically require a long credit history or extensive collateral. Instead, they look at the credit worthiness of the machine shop’s customers.