Using invoice finance for successful cash-flow management in the manufacturing and fabrication sectors

The manufacturing and fabrication industries face unique challenges when it comes to cash flow, due to traditionally long invoice payment cycles, extended project time frames, and lengthy manufacturing periods. After delivery, a typical payments process can take 60 days or more to be made, so without large cash reserves, businesses in these sectors would find it impossible to pay staff and suppliers and to keep daily operations going. An added pressure is financing from traditional lenders like banks tends to be strict, slow, and paperwork intensive.

As a result, manufacturing and fabrication companies have a strong need for alternative funding products, with invoice financing as a proven solution. This type of financing could solve cash-flow problems, and provide access to working capital for growth and expansion – without the risks associated with using the family home or other property as security.

OptiPay has assisted numerous clients with innovative, flexible invoice finance solutions. The following case studies illustrate how our products can eliminate cash-flow constraints and provide businesses in the manufacturing and fabrication sectors with the working capital they need to grow.

Case study #1: Specialty generator supplier

The challenge

OptiPay’s client designs and constructs bespoke generators for the underground mining sectors. It had been awarded a complex $5.85M project that required increased components from overseas suppliers along with domestic partner contribution. Despite a long order-to-delivery time frame of seven months, OptiPay’s client would be paid 20% 30 days after execution of the contract, with the balance to be paid 30 days after delivery.

Sectors like manufacturing and fabrication normally face a level of uncertainty and complexity during the tender and contract-awarding process. This is from the standing-offer stage to the work-order or contract stage when the terms of work are ultimately finalised and details set on the goods or services, price, delivery details, and administrative information.

The solution

OptiPay provided a customised funding solution that offered the following features and benefits:

  • Trade import funding facility – Importing can help reduce local supply costs, but it requires upfront cash. OptiPay’s trade import finance solution funded up to 70% of the client’s overseas purchases allowing the client to retain capital until the goods were received in Australia.
  • Rolling facility – A rolling facility to AUD$2M maximised cash-flow benefits. In contrast, a single funding facility would have been unlikely to resolve the cash-flow issues permanently.
  • Import cost reductions – OptiPay’s solution helped achieve a reduction in procurement and import supply costs by 18% by allowing the client to buy from the best suppliers and improving logistics.
  • Fully OptiPaySecure – OptiPay’s funding product was a completely secure solution for the client because rather than an unsecured loan, it was an advance issued against the client’s account receivables.
  • Limited recourse to the client – In the event of default by the debtor, OptiPay’s claim was limited to the collateral pledged via accounts receivable, meaning the client didn’t need to provide property guarantees.
  • Domestic manufacturing reductions – The client realised a 6% reduction in domestic manufacturing for specific components, by enabling and de-risking importing.

The result

OptiPay’s flexible, transparent, and tailored solution not only resulted in an effectively zero-cost facility to the client; it improved the client’s overall margins on the project and reduced working capital requirements. In short, OptiPay’s approach empowered the client to focus on their core business activities.

Case study #2: Earthmoving equipment provider

The challenge

OptiPay’s client had won a long-term contract to work on a major road project. While invoices were issued to the head contractor every week, the head contractor’s terms were 30 days after the end of the month, extending the payment cycle to up to 60 days.

Adding to the challenge was the client needed to pay several machinery operators every week. These operators were highly sought after in the industry and the client wanted to keep working with them rather than lose them to a competitor.

The client was looking for a financing solution that could promote good cash flow – like invoice financing.

The solution

OptiPay reviewed the client’s unique challenges and offered a selective invoice finance facility as the best solution. This enabled the client to select specific invoices for funding without the requirement of funding their entire debtors ledger. This meant that funds could be available within days, without the need to satisfy strict lending criteria or go through complex application processes.

Given OptiPay’s strong commitment to competitive financing solutions, the selective invoice finance facility offered lower costs compared with other options like unsecured loans or credit card debt.

The result

Our invoice financing solution offered a few benefits:

  • Transparent and easy process – It allowed the client to receive 80% of the value of each weekly invoice at the point the invoice was received by the head contractor. The remaining 20% minus a OptiPay service fee was paid to the client when the contractor eventually made payment.
  • Support project completion – The consistent cash flow enabled the client to complete the project without interruptions and constraints due to cash flow.
  • Pay operators on time – The client could pay the machinery operators as agreed instead of risking losing them to competitors.
  • Quality outcomes – The client was empowered to produce excellent short-term and long-term outcomes in project delivery.

Case study #3: Packaging Materials supplier to the manufacturing industry

The challenge

OptiPay’s client, a supplier of packaging materials to the manufacturing industry, was seeking an alternative to its facility with a bank. Although its financing was secured with personal assets, machinery and equipment, and commercial premises, the bank was unable to extend the terms of the facility.

The packaging materials imported by the client to supply its customers required 30% on order and the balance before shipment. The shipments were then to be transported on the water for four weeks. With the constrained banking facility, upfront import payments, and lag time to delivery, the client needed a better financing option to improve its net cash flow and release its fixed asset security.

The solution

OptiPay successfully worked with the client to implement both trade and invoice finance facilities that would pay out its existing financing option with its bank and eliminate the need for any property to be used as security.

OptiPay’s fast process would also allow the client to access financing quickly. After submitting a completed application and supporting documents, the facilities were established to assist the client make payment for its imports from the overseas suppliers and also bring forward the cash owed to it from it debtors immediately upon making the sale.

The result

Funding from OptiPay supported the client in the following ways:

  • Quick access to funds – The new facility gave the client immediate access to $2.5 million per month
  • Gross profit improvement – With stable, consistent working capital, the client was able to improve its gross profit margin by 4%
  • Cost-effective importing – OptiPay’s financing solutions included establishing an import trade facility, which helped the client achieve 18% savings as compared to their current logistics and funding
  • Payout existing provider – OptiPay’s funding option also incorporated a $2 million payout to the client’s existing provider to release the fixed asset security
  • Lowered deposit requirement – The solution also helped the client reduce its deposit requirements to 20% of orders

Invoice financing: an ideal solution for manufacturing and fabrication operations

Long order-to-delivery times, significant working capital requirements, and long payment cycles are some of the overwhelming challenges facing firms in the manufacturing and fabrication sectors. OptiPay understands these constraints and has successfully provided a range of clients with innovative solutions like trade import funding, invoice financing, and rolling facilities. These options are fully secure and require no property security.

By shortening payment cycles and offering consistent cash flow, OptiPay’s funding solutions have supported clients with improvements in gross profits, operational efficiency, and improvements in short-term and long-term outcomes.

Get tomorrow’s cash flow today. We are dedicated to helping manufacturing and fabrication businesses find smarter ways to drive cash flow and scale your business. Contact a OptiPay expert today.

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