A new manufacturer of outdoor furniture is approached by a large big box retailer. The retailer submits a large purchase order of outdoor furniture. In fact, it’s the largest purchase order the manufacturer has ever been asked to fill. What an opportunity!

The manufacturer agrees to produce the outdoor furniture requested by the retailer and does so for the price of $30,000. The manufacturer then submits a billing invoice for that amount to the retailer. The billing cycles for most large companies like the large retailer in this example, are 30 to 45 days.

While the manufacturer is waiting for payment from the large retailer, several other orders come in. The manufacturer needs immediate cash flow to fill the new orders.

"Often, open invoices are one of the largest tangible assets on a company's balance sheet. Rather than waiting 30 days or longer to be paid, it makes sense to sell the accounts. This type of financing won't show up as additional debt on a company's balance sheet, so companies maintain their flexibility for obtaining other types of long-term financing. Factoring can be a great option for fast growing and seasonal companies."

                                     - Tom Glazier, Vice President of Business Operations for DB Squared.

The manufacturer chooses to sell the invoice to a business finance company like DB Squared. When DB Squared buys the invoice, the manufacturing company gets a check just one day after acepting DB Squared's proposal.  DB Squared notifies the big box retailer that they will be collecting on the invoice originally owed to the manufacturer. Once the retailer pays the invoice 45 days later, DB Squared forwards the balance of the invoice to the manufacturer and releases the reserve.


We encourage you to learn more about Accounts Receivable Factoring from DB Squared.