From Dive to Thrive: Working Capital for Manufacturers & Distributors
In a study conducted by Crowe Horwath LLP, 54% of manufacturing and distribution companies have not implemented a working capital strategy.
Of the executives surveyed 88% believed a working capital strategy would be beneficial to increase company profits; but don’t have a clear understanding of how it impacts the bottom line.
What is Working Capital?
Working capital is the difference between a company’s current assets and current liabilities. The calculation determines a company’s liquidity and how much available cash is on hand to cover day-to-day-operations.
Working Capital for Manufacturers & Distributors and the Bottom Line
As with all companies, Manufacturers and Distributors aim for a strong financial position with consistent working capital on hand. There are several scenarios that can occur to cause cash flow constraints, such as: production/delivery delays; customers paying on extended terms; or seasonal fluctuations. When this occurs it makes it difficult to cover payroll, operating costs, fulfill orders, and purchase additional materials. Overtime it will eventually impact growth and profitability.
The question then arises if your business has or is facing any of these situations what are the options available to secure working capital.
3 Ways to Generate Working Capital for Your Business
The first option is to bring in an investor. With such deals the Company will have to give up an equity stake to the investor.
The second option is to obtain a line of credit through a commercial loan, but this can be a timely process.
The third option is an Accounts Receivable Financing solution. This is a great options for businesses who don’t want to give up equity and need to obtain financing quickly.
What is Accounts Receivable Financing
Accounts Receivable Financing is when a business uses their outstanding commercial invoices to obtain working capital.
2 Types of Accounts Receivable Financing
What is Asset-Based Lending?
Asset-Based Lending provides immediate funds in the form of a revolving line of credit based on a percentage of the value of the company’s assets, such as commercial accounts receivables, inventory, machinery and equipment.
What is Invoice Factoring?
Invoice Factoring is a working capital solution that has been used by many businesses, to generate additional cash flow by selling unpaid invoices.
Benefits of Asset-Based Lending and Invoice Factoring For Manufacturers and Distributors
By having a solution in place it takes away the worry of having to cover payroll and operating expenses. Additionally, it opens up the opportunity to upgrade to new technology, expand, add employees, launch a new product line, and even receive discounts on materials from suppliers for early payment.
Invoice Factoring and Asset-Based Lending provides businesses with solutions that are:
In the end, make sure your not one of the 88% of manufacturing/distributing executives who are not taking advantage of a working capital solution. Having a reliable Invoice Factoring or Asset-Based Lending solution in place is beneficial to supporting growth and profitability for your company.