Financial trends for manufacturing businesses in 2024

 In Accounts Receivable Factoring, Alternative Financing, Asset-based financing, inventory financing, Manufacturing

It has been a tough few years for manufacturing businesses of all types, whether they manufacture apparel, furniture, food products, equipment, electronics, parts, or something else. Four years after the pandemic, the social, economic, and supply-chain aftershocks are still echoing through the manufacturing industry, while a new wave of challenges, including spiraling interest rates, affects these businesses and their plans for the future.

In this post, we’ll look at some of the key financial trends impacting manufacturing in 2024 and provide tips to help you build the financial resilience you need to thrive this year and beyond.

Key trends impacting manufacturing businesses

The manufacturing sector is diverse, with some segments thriving and others struggling. New funding and tax incentives for infrastructure and clean energy are spurring growth for manufacturers of EVs, batteries, and clean energy components, and equipment and software manufacturing is projected to see a 2.2% growth in investment for 2024. On the other hand, steel manufacturing is experiencing a decline due to global inflation and lack of demand. 

But across all segments, there are several key trends affecting the sector as a whole. 

Interest rates. Nearly two years of continued rate hikes have had a dampening effect on the economy, which has been teetering on the brink of a recession for some time. For manufacturers, this has not only increased the cost of debt, but has created operational and budgetary uncertainty, as their customers take a wait-and-see approach that makes it difficult to plan for capacity, whether that involves reducing production during slow times or ramping up quickly to accommodate pent-up need. 

Supply chain. While the supply chain has recovered somewhat from pandemic disruptions, it is by no means robust. Today, climate change, material scarcity, and geopolitical tensions continue to create uncertainty and unpredictability in the supply chain, and many manufacturing businesses have responded by pivoting to onshoring or nearshoring and building more redundancy into their supplier network to help them fill in sudden gaps. However, both of these solutions come at an added cost to the business: onshoring and nearshoring are costlier than offshoring, while reinforcing the supplier network also comes with extra costs. 

Business costs. Manufacturing is facing increased business costs for everything from insurance to healthcare to utilities to transportation. The cost of materials has also been rising steadily for virtually everything manufacturers need to produce goods, including plastics and resins, lumber, metals, paper, and sand and gravel to name a few.

Skilled workers. A strong job market is keeping consumer spending levels on an even keel, but it’s also making it harder for manufacturing businesses to find skilled hires. According to Deloitte, job openings in the manufacturing sector are hovering near all-time highs in 2024, and the lack of access to manufacturing workers is increasing operating costs and inhibiting growth.   

Cost of debt. The steadily increasing interest rate has been headline news for many months, and with Feds proceeding very cautiously, it’s hard to know when interest rates are likely to begin falling. For manufacturers who need to assume debt in order to finance costly equipment, high interest rates will have an outsized impact, and in 2024, this situation applies to more than half (54%) of equipment acquisitions.

Commercial bankruptcies. A volatile economy has taken its toll on business. According to Epiq Bankruptcy, the total number of U.S. commercial bankruptcy filings rose 18% in the first half of 2023, with 12,107 businesses entering bankruptcy during this time. More recently, in February 2024, commercial chapter 11 bankruptcies surged 118%. (Read more about the issue here.)


Tips for building financial resilience in manufacturing

With so much economic volatility and unpredictability, every manufacturing business needs to prioritize financial resilience. Here are three things you can do to build the financial flexibility and control you need to 

Pay attention to your accounts receivable. Accounts receivable is not just an administrative formality. When performed correctly—including producing a detailed aging report every month—it enables you to control your cash flow, optimize revenues, and reduce business costs. (Learn more about this vital financial function by reading The Surprising Role of Accounts Receivable.)

Check and monitor customer credit. With commercial bankruptcies more frequent than ever, every manufacturing business needs to carefully evaluate the creditworthiness of new clients, monitor credit changes in existing clients, and, where advisable, reduce the credit facility extended to higher-risk clients. This blog post offers eight best practices for reducing the risk of nonpayment. 

Improve your access to working capital. In the current economy, manufacturing businesses are facing a need for robust working capital. Amid talent shortages and cost increases, you may need more cash to increase wages, pay for raw materials, or service high-interest debt. In addition to bank loans and lines of credit, alternative financing options, including inventory financing and invoice factoring can help you improve cash flow. 

Learn more

Read this financial case study for an equipment manufacturer who used invoice factoring to access the working capital needed to fund growth.

Contact an invoice factoring specialist in your region to find out whether factoring can help you access working capital.  

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