Most machine shops tend to be very cash flow intensive companies. They have to handle purchase orders, pay suppliers, handle payroll and collect from clients. All these events have to happen with the right timing for the business to be successful. And usually, timing is very tight. And unless the company is well funded, this means that the company is very sensitive to late client payments. For example, a client delay in a payment can trigger a chain reaction of events that leads to missing supplier payments or delaying payroll.

This problem can easily be solved with business financing. Unfortunately, getting financing in the current economic environment is very difficult. Few institutions are willing to provide business loans or lines of credit to companies that can’t provide sufficient and substantial secondary collateral. Aside from having substantial assets, companies need to show impeccable financial statements, a strong management team and a solid business plan. Few small or midsized machine shops can meet these requirements – putting a business loan out of the reach of most.

A second alternative is to ensure that client payments are always on time, or ahead of schedule. While coaxing clients to pay quickly can be difficult, you can accomplish a similar result by financing your invoices with using factoring financing. Invoice factoring provides you an advance on your invoices, providing the funding you need to meet expenses and complete projects. The transaction is settled once your client actually pays the invoice.

Since factoring provides a predictable and accelerated payment stream, your company is usually in a better position to take on new clients and projects. When used correctly, accounts receivable factoring can help a company grow.

In general, factoring is much easier to obtain than a business loan. To qualify for it, your clients must be credit worthy companies, and your business must be free of liens and encumbrances. Thanks to the current difficulties in getting conventional funding, invoice factoring has been gaining traction in becoming a mainstream source of funding.

The pallet manufacturing and distribution industry is very competitive. Whether you are manufacturing pallets, distributing them or both – managing income and expenses can be very challenging. You have to work with suppliers that demand quick or immediate payments. At the same time, your clients want to pay invoices in 30 to 60 days. Pallet manufacturing and distribution companies that cannot manage their income and expenses soon find themselves with cash flow problems.

Problems usually start when a client starts taking a little longer to pay their invoices, forcing you to dip into capital or to delay payments to your owns suppliers. If left unchecked, this situation can snowball into a major problem that threatens your company.

There are a few ways to manage this problem. One alternative is to try and negotiate delayed payments to your suppliers while trying to obtain quicker payments from your clients. Although worth a try, this type of juggling seldom works for the long term. A second alternative is to get business financing from an institution.

This can be a good alternative for larger companies who can show substantial assets and provide solid financial statements. Although qualifying for a business loan is not easy – business loans are usually available to well managed larger firms. But what can small or midsized firms do?

A better alternative may be to use factoring financing. Invoice factoring solves the dilemma of slow paying clients by providing an advance against their invoices. This quick payment provides the firm with the funds they need to meet expenses and grow the business.

Factoring has a number of benefits. It provides the company with stable and predictable cash flow, which smooths operations and planning. Furthermore, accounts receivable factoring (as it’s commonly called) is fairly easy to obtain. The biggest requirement is that the invoices you finance have to be from credit worthy commercial clients. Additionally, your company needs to be free from legal or tax problems or encumbrances.

Qualifying for factoring is relatively easy which makes it an ideal solution for small and medium sized clients whose biggest problem is that they cannot afford to wait to get paid by clients.