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The UK manufacturing sector is currently in recession and is in decline. The British manufacturing sector is fairly diversified, but its key strengths lie in the aerospace, high technology and pharmaceutical industries – and to some extent car production.

As far as the manufacturing sector is concerned, factoring involves a manufacturing business using its outstanding invoices as security against short term lending, allowing a business to receive up to 90% of the invoice value immediately.

If a manufacturing business has an order worth £10,000 with 60 days credit, it could use factoring to gain up to £9000 of the invoice now, and the balance (minus an administration charge, usually 1-2% of the invoice) when the money is paid.

Why the manufacturing in decline?

  • The exposure to international trade,
  • The strong pound has made British exports more expensive than international goods.
  • Reduced investment
  • Poor image
  • Lack of start-ups
  • Cheaper labour costs has made firms move their production operations abroad

Factoring and Cash flow solutions for the surviving UK manufacturing sector

  • Factoring has emerged as a lifeline for UK manufacturing businesses
  • Most manufacturing companies have to wait up to 90 days to get paid
  • A factoring company pays the manufacturing company up to 85 percent of what is owed them
  • They hold out a percentage, usually 15 percent, to cover any disputes that may arise between the manufacturing company and its customers
  • Once the factoring company gets paid they send the balance of the invoice minus their factoring fee.
  • The factoring fee is usually 1.5 to 2 percent.
  • A big consideration for the factoring company is the financial reliability of the manufactured product as if the product the manufacturing company make is reliable then invoices will be paid without dispute.
  • Over time if the manufacturing company’s products are reliable and never cause problems for its customers, then the factoring company will probably reduce the amount it holds out to cover disputes.

Factoring can be a valuable tool for manufacturing businesses, as it allows them to gain finance orders immediately, even if the invoice has a credit period or the goods have not yet been produced/delivered.

Our services are completely free of charge so if you are involved in the manufacturing industry and are interested in factoring and other cashflow solution then please call on 0800 597 4757.