Outsource Financial Services understands the unique liquidity needs of contract manufacturers and their suppliers, and our experienced account managers are here to help you manage the routine challenges that tie up capital and time for your business.
We have talent that has worked with Tier 1-4 contract manufacturing and supply chain analysis, payment terms and pricing, and can help structure a solution to keep your cash at work.
For example, Electronics Manufacturing Services companies and other contract manufacturers face several challenges in managing liquidity:
- In many commercial markets, OEM orders are uniform and regular leading to efficient manufacturing. EMS box builders that service this market are typically those that focus on high volume, low mix, and low complexity.
- EMS box builders that service industrial markets, government markets, and military markets are generally those that focus on high complexity, high mix, and low volume products.
- For these markets, acquisition cycles are driven by other factors (immediate need, budgets, etc.) not by efficient manufacturing. It is up to the EMS box builder to balance the terms with the OEM and the terms with the supply chain to maintain liquidity while maintaining an efficient manufacturing process and a healthy supply chain.
OFS invoice factoring can provide this liquidity for both the contract manufacturer, AND companies within the supply chain.
We help balance liquidity for events such as:
- Large orders with highly variable revenue recognition
- Mismatch in payment and receivable terms between customers, contractors and suppliers
- Keeping compliant on your delivery terms
- Excess/Obsolete/End of Life Material Management
- Material Inventory Management
- Long lead material items
- Fully burdened production and test labor costs
- Portion of supply chain invoices due prior to receipt of OEM payment
In 2015, a Tier-4 EMS company received a very large order from an aerospace client that they had been doing business with for over a decade. “The client had an unusual need for a large quantity of expensive assemblies. At the time, the capital requirements required to meet the client delivery schedule exceeded our credit lines and cash on hand,” says former CEO and President. “The option of additional bank financing was considered but discarded due the timeline imposed by our bank. To provide liquidity for this order we chose to factor our invoice to the client. The process was seamless, we provided the Bill of Material (BOM) to our factoring partner who advanced cash to a fraction of our suppliers as our invoices became due. We worked to coordinate raw material deliveries in order to limit the duration that we held inventory, and we were able to ship on time and profitably. The cost of the borrowing was reasonable due to the short period of time we actually needed the funds. We factored over a third of a million dollars for this order allowing us to fulfill the order on-time with no impact on our supply chain and with no additional debt. The process was efficient and fast. Factoring of invoices is a great option for EMS companies facing similar liquidity challenges, if you know your customer and understand what it takes to limit the duration of borrowing.”
We factored over a third of a million dollars [for this order] allowing us to fulfill the order on-time with no impact on our supply chain and with no additional debt. The process was efficient and fast. Factoring of invoices is a great option for EMS companies facing similar liquidity challenges, if you know your customer and understand what it takes to limit the duration of borrowing.