It is common for small aviation parts suppliers to encounter cash flow problems. For some companies, the main reason for these problems is that aviation customers, especially large corporate clients, tend to pay their invoices slowly — in 30 to 60 days.
For other companies, their chief obstacle is that they are growing too quickly and don’t have the working capital to cover supplier expenses for their growing orders. Both of these problems are common for small aviation parts suppliers and can be fixed with the right financing solution.
Problem: My clients pay in 30+ days. We need money sooner.
The problem of slow-paying clients affects both large and small aviation parts companies who have to pay their suppliers quickly but often must wait up to 60 days to get paid by clients. This payment delay puts them in a position where they can run out of money while waiting for payments.
You can solve this problem by factoring your invoices, a solution that accelerates the revenues owed by slow-paying customers. Basically, a finance company provides you with funding using your invoices as collateral. This strategy gives you immediate use of the funds, while the factor waits until your client pays.
Problem: My company is growing quickly. We need money to pay suppliers.
This problem can affect aviation parts brokers that resell aviation parts. They usually get orders from clients and then place a corresponding order with a supplier, who fulfills the order. Unless your company is large or has been in a business for a few years, most parts vendors request immediate payment. But if your company is growing quickly, you could simply run out of funds and be unable to fulfill orders until other clients pay.
You can solve this problem by financing your purchase orders. This tool provides the funds to cover your supplier payments, as long as you are buying products for a confirmed purchase order from a creditworthy customer. The transaction concludes after your end customer pays for the part(s).
This solution has simple qualification requirements. The most important requirements are that you work with reputable vendors and well-established clients. The following article shows a sample transaction.
What if you have both problems?
Both factoring and purchase order financing work well together and can be used to finance the same transaction. As a matter of fact, purchase order (PO) funding transactions are often refinanced as receivables factoring transactions once the product is delivered to the customer. Since PO financing costs less than factoring, this strategy reduces the total cost.
To qualify for receivables factoring, your company must:
- Have creditworthy customers
- Invoice clients after the aviation parts have been delivered
- Have unencumbered receivables
Additionally, if you want to use PO funding, your company must:
- Work with reputable and certified aircraft parts providers
- Have gross margins higher than 20%
Both solutions are easier to obtain than conventional bank financing and are designed to help companies with cash flow problems. When used correctly, these programs help provide aviation suppliers with a stable financial platform for growth.
Get more information
We can provide factoring financing with high advances at low rates. For information, get an online quote or call (877) 300 3258.