From Dive to Thrive: Strengthening Manufacturing and Distribution with Working Capital
In a study conducted by Crowe Horwath LLP, 54% of manufacturing and distribution companies have not implemented a working capital strategy. In addition, 88% of the executives surveyed believed a working capital strategy would be beneficial to increase company profits; but don’t have a clear understanding of how it does impact the bottom line. Let’s explore just exactly how taking advantage of a working capital solution will solve your day-to-day operations and increase profitability.
Most manufacturers and distributors are relying on customer invoices to support cash-flow. This model works well if your customers are paying by credit cards, checks, money orders, or cash; but the majority is taking advantage of N30-N90 day terms. This in turn puts a strain on the company’s liquidity. Making it harder to cover payroll, operating costs, fulfilling orders, and purchasing additional materials. Not to mention it will eventually impact growth and profitability. Having a working capital solution in place will counter-balance the effects of waiting on cash-flow from customer invoices.
Why Use Asset-Based Lending or Factoring
The first option is to obtain a working capital solution through traditional financing. Sometimes that is not a viable option due to stringent covenants. Another option is bringing in an investor. Even though companies are reluctant to do this since it involves giving up equity in return. Factoring and Asset Based Lending provides the flexibility, scalability, and reliability to quickly generate growth. 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, add additional needed staff, launch a new product line, and even receive discounts on materials from suppliers for early payment.
In the end, do not become one of the 88% of manufacturer and distributor executives who are not taking advantage of a working capital solution. Having a reliable Factoring or Asset Based Lending solution in place is incredibly beneficial to your company to support growth and profitability.