How to Finance a Pallet Manufacturing and Distribution Company

Running a pallet manufacturing and distribution company can be challenging. You have to manage the logistics of your supply and vendor chain while tracking your customer orders – all while keeping an eye on your cash flow to make sure you can keep the business running.

Managing cash flow can be tricky, especially for companies without big capital reserves. All it takes is a few late client payments before the company finds itself in real financial trouble. This scenario causes many pallet companies to run into problems.

Corporate clients pay slowly

Most corporate clients demand payment terms, allowing them to pay in 30 to 60 days, as a condition of awarding a contract. There are two reasons why large companies ask for terms.

The often-cited reason is purely bureaucratic: large companies have multiple layers of management, and invoices usually need to be signed off by a number of individuals. This process takes time.

But there is another, more important reason for requesting terms. By paying you slowly, companies use your products for free until they pay you. These terms are like an interest-free loan financed by their vendors – a great deal if you can get it.

But this arrangement creates a problem for your pallet company because you need to operate your business while waiting for payment. Unless you have the resources to pay suppliers and employees while waiting, you will run into problems.

At times, the problems are merely minor nuisances. At other times, however, financial problems can derail your projects. These problems become more troublesome if your company is growing.

Improving your cash flow

One way to fix this problem is to use receivables factoring to improve your cash flow. Receivables factoring is a tool that finances your open invoices from creditworthy commercial and industrial customers.

Instead of waiting up to two months for payment, you get paid immediately by the finance company, who holds your invoice as collateral and closes the transaction when your customer pays in full on their usual schedule.

From a tactical point of view, your cash flow improves dramatically – allowing you to operate your business. From a strategic point of view, however, this tool allows you to grow your business. You can now offer terms to customers without worrying about your cash flow because you can always finance a receivable if necessary. If your company can’t grow because you can’t offer terms, receivables factoring helps you.

How does receivables factoring work?

Most receivables factoring transactions are structured differently from business loans. The finance company does not lend you money, rather it buys your receivables. The purchase occurs in two installments: the advance and the rebate. The transaction flows as follows:

  • You deliver the pallets to your client
  • You send an invoice to your client and to the finance company
  • The finance company advances up to 85% of the invoice and wires funds to your account
  • Once your client pays, the finance company rebates the remaining 15%

The cost of factoring is deducted from the rebate. The fee varies based on the creditworthiness of your clients and the size of your funding facility.

Is a receivables factoring solution easy to get?

Unlike the qualifications for most manufacturing business loans, the requirements for financing receivables are relatively easy. The most important requirement is to have creditworthy corporate customers because your invoices act as security collateral for the transaction. Additionally, your invoices can’t have liens and your company must be free of legal and tax problems.

In summary

Financing receivables can help pallet manufacturing and distribution companies with cash flow problems because of slow-paying corporate clients, and it can provide a solid foundation to grow the business without the challenges of conventional financing.

Get more information

We are a leading factoring company and work with pallet manufacturing and distribution companies. For information, get an instant quote or call  us at (877) 300 3258.