How can factoring support local manufacturers today?

A healthy cash flow is essential for any manufacturing company, because available cash covers salaries, purchased raw materials or supplies, and other expenses a company incurs to keep operations running smoothly. The main challenge for manufacturers, especially local ones, is that paying these costs depends heavily on collecting payment on invoices issued for delivered products and services provided.

Despite the idea that “SMEs are the backbone of the economy,” most local manufacturers can't cover their operating costs because of:

• A lack of government support measures;
• Limited access to standard financing sources;
• Crises, regardless of their nature, that affect business operations.

In an effort to find new ways to pay the expenses generated by their operations, local manufacturers are looking at ways to unlock the value of invoices issued to customers through factoring. Below, you'll see the current situation local manufacturers face and how factoring can help keep things running smoothly.

The economic context facing most local manufacturers

For the past few years, Romanians have become more aware of the importance of products made in Romania and have increasingly turned to local products. This trend was accelerated by the Covid-19 pandemic. As a result, local entrepreneurs have focused their efforts on launching businesses that offer products combining quality, Romanian spirit, and craftsmanship.

However, the pandemic has had a negative impact on local manufacturing companies. The foundations of manufacturing were shaken by market volatility, making adaptation essential. Most local manufacturers are trying to rethink their processes so they can better respond to customer needs. If they don't take the right steps to protect their growth, they risk being overwhelmed by the situation and even facing insolvency or bankruptcy.

Challenges faced by local manufacturers

The main challenges local manufacturers have faced as a result of the pandemic are:

• A lack of guidance and opportunities that would help local manufacturers reach new customers more easily;
• The inability of business customers to pay their invoices by the agreed due date;
• Cash flow imbalances caused by unplanned expenses or late invoice collections;
• Limited access to conventional financing sources to cover current expenses;
• The risk of not paying salaries or other debts on time;
• A lack of digital platforms that make online shopping easier in both B2B and B2C, and that automatically sync data to reduce errors and manage inventory efficiently;
• Introducing procedures to maintain safety for employees, processes, and manufactured products, which slowed down production lines and, in turn, efficiency;
• Rethinking supply chains, local manufacturers could no longer source raw materials and supplies, either because suppliers had shut down or limited their operations, because they couldn't collect receivables and pay their debts to suppliers on time, or because purchasing costs had increased. As a result, many local manufacturers had to rethink how and where they buy what they need;
• A lack of financial literacy among local entrepreneurs;
• Higher prices for various contracted services, which drive up production costs.

What can local manufacturers do to solve these problems?

To eliminate these challenges, most companies opt for bank loans. However, this can have major repercussions on local manufacturers' operations. The most common effects of bank loans include:

• Greater responsibility for the business;
• Higher interest payments;
• Taking on contracts with long-term obligations.

On top of that, getting this type of financing means submitting loan applications that require long approval periods. That can slow operational processes down and reduce productivity. It can also stop local manufacturers from winning new business opportunities.

In this context, one of the easiest and fastest ways to address these difficulties is to unlock the value of invoices issued for products delivered to businesses through factoring. Factoring is a financing source that brings countless advantages:

• efficient access to cash from invoices;
• better cash flow.

Even in times of economic crisis, local manufacturers who use factoring regularly will be better able to:

• manage their finances;
• manage cash flow.

Local manufacturing companies that use factoring as a financing source:

• have instant access to cash;
• don't have to deal with the stress of depending on customer payments.

The application for this service is approved within 24 hours of submission, helping optimize operations.

How does factoring support local manufacturers?

In the current context, factoring can support local manufacturers in the following ways:

• It provides cash to cover current expenses generated by operational processes. It also makes it easier to pay suppliers on time, which can bring extra benefits, such as discounts. At the same time, procurement becomes more efficient, which helps keep production running at optimal levels;
• It makes it possible to set longer payment terms for delivered products;
• It balances the gap between paying suppliers and collecting receivables;
• It creates the capacity to handle new orders by purchasing the raw materials and supplies needed for production;
• It gives local manufacturers the chance to win new customers;
• It takes over collecting payment on local manufacturers' invoices;
• It directs manufacturers' attention toward strategies that optimize or grow the business;
• It helps pay employees' salaries in full and on time. With cash available, local manufacturers can hire new staff as order volumes rise, even during a crisis;
• It improves cash flow, which shows the company is financially healthy. That makes it much easier to attract investment.

Conclusions

Winning a leading position among manufacturers is becoming increasingly difficult for local manufacturers because this industry keeps changing. Since the challenges they face are tied to a lack of cash to cover urgent costs, most local manufacturers can turn to factoring. If you have questions about this financial service, contact us to learn more.