By it’s very nature, the manufacturing industry lends itself well to invoice financing, a flexible and agile funding method. Manufacturing is alive and well in both Australia and New Zealand.
Reports are stating that the manufacturing industry in Australia is heading for a renaissance, with 40,000 new jobs created in 2016. In New Zealand, manufacturing also plays a vital role, accounting for nearly 50% of all exports; the feted wine industry making up a large component of that figure.
Because manufacturing almost always requires a significant front-end investment, from raw materials, to production space, equipment, employees, industry certifications and governance. New investment is regularly needed before new orders are received and before filled orders are paid.
This – and the fact that invoice payment terms are now stretching as far as 120 days – creates a classic (and somewhat unfair) cash flow gap. Unmanaged, this cash flow gap can have serious, and potentially fatal, business implications for manufacturers.
In 2017, manufacturing represented 12% of Australia’s gross domestic product. While there are many national manufacturers, such as BHP, Rio Tinto, Amcor and Dulux, many can be classified as small to medium sized enterprises, or SMEs. Without the weight of institutional funding behind them, it is these companies who are arguably more exposed to the impacts of cash flow stress.
At March 2018, the manufacturing sector had recorded 16 months of consecutive growth, contributing to increased company profits, and stronger employment numbers nationally.
As demand for manufacturing rises, so too does the pressure on operators to lock in contracts, purchase materials, increase their workforce, and capitalise on growth opportunities.
From experience, we know that periods of growth can also deliver increased cash flow stress to small to medium sized businesses, particularly where payment delays are the norm for big customer groups.
And that’s where invoice financing can be the manufacturer’s best friend.
It may not be fair but delayed payments – and cash flow stress – are pretty much a fact of life for manufacturers. But invoice financing can deliver you immediate cash flow by having your invoices paid when you need them.
What is invoice finance?
First up, it is not a loan. Invoice financing (which can also be called invoice factoring) is simply a way to have your invoices paid faster.
To qualify for a loan from major institutions you must meet certain criteria – and these days we are seeing more of these institutions demand personal property be put as collateral for the loan. For some small business operators, this is a slippery slope.
But that’s not invoice financing.
When a business uses invoice finance, they use an invoice financing company such as Apricity – to pay their invoices faster. It is the equivalent of being paid immediately by their customer, minus a fee (in our case, 3% for 30 days). With Apricity, the collateral used is the invoice itself (although this isn’t always the case with other providers). When the invoice is paid in full by your customer, the debt is cleared.
Benefits of invoice financing for manufacturers
If you are a manufacturer, you have no doubt experienced cash flow stress at some point in your business cycle – it may even be a recurring nightmare.
Invoice financing can put paid to that nightmare by delivering cash flow certainty, enabling you to pay your suppliers and employees on time, budget for growth and capitalise on market opportunities.
Contact Apricity today to find out how we can help your business.