Most Machine shops begin their businesses small and self-financed. After establishing a customer base and growth starts to incur, they find themselves not able to self-finance the receivables portion. Machine shops are faced with a common industry challenge: vendors, suppliers and payroll all need to be paid before collection on charge sales.
Machine shops usually sell on net 30 to 60 day terms. Shops that don’t have the resources to wait this long to get paid can run into working capital problems. One way to address this problem is to use invoice factoring. Invoice factoring for Machine shops is a great cash flow solution for additional working capital.
Machine shop owners extend payment terms to their customers. The receivables may be the largest asset the shop can offer for additional working capital. By setting up invoice factoring line of credit, the shop can utilize its own asset for immediate working capital and create additional cash flow. Additionally, the shop can increase its credit terms to existing customers and solicit larger customers without impairing their cash flow.
Qualifying for invoice factoring is easier than qualifying for conventional loans. The most important requirement to qualify for invoice factoring is to have credit worthy commercial customers. This is critical because the credit worthiness of the shop’s customers is the collateral that the factoring company is relying upon. Aside from that, the following requirements must be met:
- Shop must be free of legal and tax problems
- Invoices and time cards need to be for completed work
- Invoices need to be free and clear of liens and encumbrances