We recently sat down with Blake Kennedy, SVP, Regional Sales Manager (South) at Bibby Financial Services to get his take on a few questions specifically geared towards the manufacturing business owner. Blake presented at the MBE National Manufacturers Summit on “Going Global with Export Financing” during the Financing for Growth: Five Tips in Five Minutes workshop. These tips are sure to provide manufacturers exploring or interested in manufacturing financing with a few insights from commercial funding providers like BFS. Read on to hear Blake’s responses to the top questions of concern to manufacturers considering commercial funding.
Q: What are some common issues manufacturers have that commercial funding through BFS can solve?
A: Traditional Banks are hesitant to fund companies with foreign Accounts Receivable balances. That’s where Bibby comes in. BFS has the resources and experience to provide manufacturing financing to fund companies who have significant overseas AR balances. Another prominent issue is that long invoice payment time-frames (or non-payment) can stifle cash flow for a manufacturer, creating cash flow bottlenecks at payroll time or when making routine purchases. The need for cash quickly goes further than making payroll and normal purchases though. Manufacturers need cash available on hand to have the flexibility to take advantage of purchasing opportunities or to upgrade and expand capacity.
Q: What is different about the commercial funding that BFS offers to manufacturers when compared to a bank loan?
A: First, we partner closely with a company to understand the unique nature of their business and commercial funding needs. We offer services like invoice factoring and asset based loans that provide a custom-tailored approach to funding for manufacturing businesses. Many businesses whether in the start-up phase or if they have a significant amount of export sales find that they can’t qualify for a bank loan but can qualify for commercial funding. With BFS’s commercial funding solutions, we can disburse working capital much faster than other types of lending and offer competitive rates. As a funding partner, BFS provides additional value-added services and recommends providers for others.
Q: What types of manufacturing financing services do you have that typically work best for this industry?
A: Asset based loans can be specifically tailored to a manufacturer’s business. Secured by the value of your company’s assets including inventory, machinery and equipment, manufacturers can secure the cash to expand capacity, fund acquisitions or take on other growth opportunities.
Invoice factoring is an advance (typically 90%+) on accounts receivable that allows manufacturers to focus on their business while BFS handles payment and collections, freeing up administrative time. When payment is made, you receive the remainder of the invoice, minus contracted fees. Invoice factoring can be crucial for manufacturers whose business has long or varied payment terms with customers that lead to uncertainty in cash flow.
Q: Do you have any tips for manufacturers who are evaluating their needs for funding?
A: Absolutely. First, do you have a cash reserve? If an emergency or purchasing opportunity arises, do you have the cash available you need above your operating capital? If a company seeks to have the financial flexibility to be prepared when opportunities arise, which will become increasingly important as we see how the trade relations will play out over the next few months, having a commercial funding partner already in place is a crucial and time-saving advantage.
Second, do you always have a clear picture of the break-even point of expenses or equipment? A break-even analysis is a critical step in avoiding a cash flow bottleneck. Asset based loans allow you to finance inventory, materials or equipment without impacting cash flow.
Third, understand your contractual ‘IncoTerms’ (International Commercial Terms), the contractual terms around shipping and customs for an international sale that determine who takes ownership of goods. It's important to note invoice factoring can be executed when your customer, even if overseas takes ownership or when the shipment shows as having cleared customs. Foreign transactions must take place and be clearly documented in order for the sale to be considered viable and fundable, even by alternative lenders. Understanding these contract terms is crucial to understanding the type of funding your business would be eligible for.
BFS has developed straightforward, flexible funding solutions for manufacturers to help business owners operate and sell goods/services domestically or internationally. Click here to request a quote or register today to hear more tips on Export Finance from Blake Kennedy at the MBE Manufacturers Summit.