How Supply Chain Finance Companies Are Helping the 3D Printing Industry

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According to recent statistics that Small Business Trends published, about 44 percent of new businesses fail before they reach their fifth anniversary. Lack of sufficient cash was the reason that many of these entrepreneurs finally threw in the towel. For 3D printing companies, opportunities abound. However, they still face the age-old problem of cash flow that haunts the best of businesses. Supply chain finance companies that offer invoice factoring and purchase order financing give 3D printing businesses a revolutionary boost when it comes to working capital.

Many business owners go to a bank, however a bank requires collateral and years of financial past performance documentation from a business before it lends funds. Without the backing of financials and tax returns, a 3D printing company would likely have trouble in finding a bank based loan or cash flow solution.

Hard work and American ingenuity are at the foundation of U.S. based 3D printing companies. However, cash-strapped companies miss out on opportunities to innovate and prosper in this high-growth industry. Supply chain finance is comprised of several financial tools such as invoice factoring and purchase order financing. Many manufacturing and 3D printing companies use these financial instruments to help bridge the cash flow gap during the production phase of a large job. Every manufacturing plant has the same dilemma in trying to balance the ordering of products, timing of arrival, and production delivery that equates to sales on credit.

Almost every production manager can procure the backend supply chain like a musician playing an instrument but it has no control of how long an invoice may remain unpaid. What happens to many manufacturing companies that do not have a backup of cash flow is delayed raw material deliveries due to payables exceeding their vendor’s requirements and usually trigger expired purchase orders, cancellation of orders and loss of customer trust.

A 3D company should always be prepared by establishing an accounts receivable finance program that can avoid cash flow shortages due to customers taking longer to pay than expected.

What are the most popular financial tools available for the 3D industry

Invoice factoring is a financial service that allows a 3D company to access funding from a factoring firm that pays up to 90 percent of the invoice’s value immediately and retains 10% reserve until it’s paid by the buyer. The factoring firm pays the 3D company the remaining balance of the invoice minus the discount fee after the company’s customer pays the invoice in full.

Purchase order financing is a lending tool that allows companies to access funds from a lender to fulfill an existing purchase order. This type of finance arrangement usually is available once the client obtains invoice factoring. Once the raw materials or finished goods are delivered to the buyer, the factoring company pays off the purchase order finance obligation and sends the difference to the 3D company, then waits for payment from the buyer.

3D printer machine printing plastic workpiece look like metal at futuristic technology exhibition – close up shot. 3D printing, 4.0 industrial revolution and manufacturing concept (3D printer machine printing plastic workpiece look like metal at futur

Trade Payable Finance is a method of which a large financially strong buyer establishes a credit line with a factoring company on behalf of a 3D printer company to help accelerate the payments to its supply chain vendors. The 3D company agrees to deduct a discount in return for an early payment in order to accelerate cash flow but still allows the buyer to pay the standard terms to the factoring company. This type of financing requires suppliers that need more than $100,000 a month in early payment request.

Establishing credit terms sales with customers and converting the invoices to cash flow

Example: A seasoned entrepreneur’s eyes start to sparkle as it envisions supplying 3D printed ergonomic office accessories to retail stores such as Office Depot, Staples, and Costco. Startup businesses are more challenging because they only have access to invoice factoring at first. They have to deliver a product to a customer and generate an invoice. A new company has to offer credit terms to customers in order to do business and a factoring company is used to accelerate the credit terms sales into immediate cash flow. This enables a newly formed business to continue purchasing raw materials, pay for fixed overhead, production labor, logistics and finance the unpaid invoice.

More on invoice factoring basics

How to leverage and access money from a purchase order?

Once a business outpaces its cash flow from invoice factoring, then the 3D printing company can establish purchase order financing so long as there is recurring business from the same customers and there are purchase orders pending. Companies utilize this type of financing to keep the supply chain flowing without delays of a supplier waiting for money to deliver raw materials.

We find that many vendors are not open to sell a 3D company on credit terms until its established, however a purchase order company can come in and pay for the supplies and raw materials needed to complete the orders pending. There are more requirements needed when a business applies for po finance compared to a factoring company. The good news is if your company has recurring transaction flow in the business, it will usually qualify.

3D printed gear in a car electric drive module.

More on preparing for a purchase order finance application

Purchase order financing firms help 3D printing companies get the cash that they need to buy extra supplies, pay laborers, and transport finished goods to customers without touching the companies’ cash reserves. Purchase order financing companies don’t require long-term contracts for their services. Established 3D printing companies that have adequate equipment can get cash for supplies when they need it to meet short-term demand. They can also scale back to normal production quantities without losing money when demand for their products plateau.

Advancements in technology make it easier than ever for businesses to go global. However, many small and mid-sized 3D printing businesses pass on opportunities to sell their products beyond their local markets because of insufficient cash flow. Invoice factoring and purchase order financing firms level the playing field for smart businesses in the area of working capital just as social media did in the field of marketing.

Establish growth and brand recognition with the larger known companies in your industry

A new 3D printing company has to walk a tightrope to balance sales growth and brand building activities. If it only takes small orders from lesser-known retailers, it’ll take longer for the public to recognize its brand. Without establishing solid brand recognition, the 3D printing company risks being subverted by copy-cat competitors. If the company uses its cash to fulfill larger orders with well-known retailers, it may run out of cash to operate. Invoice factoring and purchase order financing firms help to mitigate the risk of running out of money to fulfill large, short-term orders with big-name clients. Once the 3D printing company exceeds the expectations of one well-known retailer, its brand name will be exposed to other retailers in the sector.

Cash Flow Solutions that keep your supply chain flowing

1st Commercial Credit provides supply chain financing for small to large companies ranging in monthly sales of $50,000 to $10 Million. We specialize in accounts receivable based financing and purchase order finance for manufacturing and distributors. We have been in business for over 18 years and service all of the United States, Canada and some UK areas.

Author: Raul Esqueda, President

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