Steel Gets Paid in 30 Days. The Customer Pays in 60.
A fabrication shop pays for a job twice before it sees any money. First the plate, tube or bar comes in from the service center, usually on 30-day terms. Then the shop pays its welders, fitters and machinists week after week while the parts get cut, formed, welded, painted and crated. Only after the order ships does the invoice go out, and the customer’s clock starts at net 45, net 60 or longer.
That stretch between paying for material and getting paid for the finished part is what manufacturing factoring is built for. It hits small and mid-size Texas job shops hardest, because they carry the cost of the work for customers who are often far bigger than they are.
Metal fabrication and welding shops are among the Texas businesses K.W. Receivables has bought invoices from, and a sample of the companies whose receivables we purchase is on our commercial accounts list.
For a shop owner sizing up a factoring company in Texas, that history is a fair place to start. Manufacturing billing has its own paperwork, and a factor that has seen it before won’t treat a 60-day customer as a warning sign.
Why Manufacturing Invoices Sit Unpaid
Long terms are only part of it. And they have been getting longer. The Fabricators & Manufacturers Association’s benchmarking survey found average days in receivables rising from 43 to 46 between its 2013 and 2016 editions, and one fabricator at an FMA panel described a large customer asking for 120 days.
Then there’s the paperwork. Many manufacturing invoices only clear after the customer’s accounts payable team matches the invoice to the purchase order and the receiving record, a check usually called a three-way match. When something doesn’t line up, the invoice goes on hold. Often nobody calls the shop to say so. The usual reasons:
- Missing or mismatched mill test reports. On jobs that require material traceability, the heat numbers on the MTRs have to match what was ordered and shipped.
- A PO that doesn’t match the invoice. Quantity, unit price or drawing revision changed after the order was placed, and nobody revised the PO.
- Receiving hasn’t logged the shipment. The parts are sitting on the customer’s dock, but the receipt isn’t in their system yet.
- A quality hold. A first article inspection is still open, or a nonconformance report is waiting on a response.
- Portal trouble. The invoice was emailed to a customer that only accepts invoices through its supplier portal, or the shop’s vendor setup is still incomplete.
Each one adds days or weeks to terms that were already long.
When the wait can’t be shortened, the next question is what it costs to carry it. Our flat-fee pricing is one flat fee up to 120 days, so a slow-paying customer doesn’t push the cost up the way an escalating rate would.
Fee structure isn’t the only thing worth comparing, either. Our Why Choose Us page lays out what to check before choosing a factor, starting with how the fee behaves when a customer pays late.
What the Gap Does to a Shop
Payroll goes out every week or two whether an invoice is on hold or not. The steel for the next job has to be bought now. Gas, consumables, tooling and repairs on the press brake don’t wait for a customer’s AP department either.
So the shop ends up financing its customer. A strong month can make it worse, not better. A big new order means more steel and more overtime going out weeks before any of that money comes back, which is the frustrating part: shops turn down work they are fully able to build because they can’t carry it.
Shops that depend on one or two large customers feel it most. When a customer that makes up half the revenue changes its terms, or switches accounting systems and its payments stall, the whole shop feels it.
The usual workarounds each have limits. A credit line gets maxed. The service center gets paid late and starts asking questions. Deposits on large custom orders help when a customer agrees to them (plenty won’t).
Paperwork That Ships With the Parts
Before looking at financing, tighten the part of the cycle the shop controls. A few habits that tend to keep invoices out of the hold pile:
- Put the customer’s PO number and line numbers on the invoice and packing slip, exactly as the PO shows them.
- Send MTRs and any required certs with the shipment, and keep copies filed by job.
- Invoice the day the order ships, through whatever channel the customer requires.
- Get a revised PO before shipping any change in quantity, price or revision.
- Check each customer’s supplier portal once a week for invoices on hold.
None of that turns net 60 into net 30. It keeps net 60 from turning into net 90.
How Manufacturing Factoring Works for a Job Shop
Manufacturing factoring turns approved invoices into cash now instead of in two or three months. The shop sells the invoice and gets paid for it, and the customer pays on its normal schedule. It is a sale of an invoice, not a loan.
Because the factor is counting on the customer’s payment, the customer’s credit matters more than how long the shop has been open. That suits a lot of Texas job shops: a young or growing shop whose customers are established companies that pay reliably, just slowly.
The shop also chooses which customers’ invoices to sell. It can factor only its slowest account and leave everything else alone.
It changes how a shop answers a big RFQ, too. Quoting a large order is easier when the steel and labor for it don’t have to come out of the shop’s own cash for two or three months.
How K.W. Receivables Helps Texas Manufacturers
K.W. Receivables is a family-owned factoring company in Humble, TX (Houston area) buying invoices from Texas businesses since 1991. Our fee is one flat fee up to 120 days, with no long-term contract and no hidden charges, and a real person answers the phone. Funding can run from a few thousand dollars a month up to a few hundred thousand dollars. To find out more about getting paid now rather than later on your machine shop or manufacturing invoices you are waiting to get paid on, call K.W. Receivables at (281) 446-5444 or start an application.
