Businesses that have been producing and supplying personal protective equipment (PPE) are facing numerous challenges since the pandemic began in the United States in early 2020. In addition to facing unprecedented demand for their products, they were also facing problems with shipping thanks to travel and export bans, and concern for the health and safety of their workforce.
For some businesses, none of these was the most significant challenge — the biggest challenges came in two phases, the first obtaining raw materials, and the second having sufficient working capital on hand to ensure they could ramp up their production to ensure they can meet the demand for finished products.
Meeting Challenges Needed to Successfully Deliver PPE
Some of these challenges have continued. In fact, as recently as August, there are still ongoing reports of shortages of PPE for healthcare workers. In part, this is because no one planned for a need of the amounts of PPE which would be needed — today, not only healthcare workers, but daycare centers, schools, offices, and restaurants are also in need of PPE. This need is likely to continue well into the end of 2021 given it could take that long to get vaccines distributed and administered to larger portions of the population of the United States.
For those businesses who supply PPE finding the balance between maintaining open supply lines and ensuring they can meet demand while building inventory for future demand can be challenging. The challenges range from being able to obtain raw materials and ensuring they have the logistics set up for delivering the products they are manufacturing. This may involve the need to not only have a sufficient amount of capital on hand to purchase raw materials but may also require a company to review how they currently receive raw materials and deliver completed products.
COVID-19 Impact on Manufacturing Overall
In a broad report released by Thomasnet.com® we learned just how challenging manufacturing been since the beginning of the pandemic. Some of the statistics show:
- 46 percent report shipping and logistics disruption
- 35 percent face production restrictions in offshore factories
- 8 percent cite an increase in the costs of goods
Those who are manufacturing and supplying PPE must be prepared for this “new” normal and prepare for these challenges during 2021 and going into 2022. Demand is likely to continue in industries that once never called for PPE including restaurants, school districts, and smaller business owners including hair and nail salons, and more. This is an opportunity to grow your business if you have the financial plan in place to take advantage of the increase in demand.
Securing Funding to Fulfill Contracts
With demand for PPE continuing to escalate, businesses must have sufficient funding to source the PPE items from third-party manufacturers or to secure raw materials if you manufacture products in-house. Those with contracts can either take out a loan, impacting their balance sheet, sacrifice equity in their company by raising funds from outside sources, or they can opt to leverage purchase orders and invoices for cash.
Many large users of PPE including government municipalities, hospitals, and school districts order supplies using purchase orders (POs). In effect, these purchase orders are a contract between you and the other party stating they want to purchase a specific amount of PPE by a certain date. You must be prepared to deliver this product while understanding that upon delivery, it could take as long as three months, and in some cases longer, for you to be reimbursed because a payment has been made. One of the most critical financing tools you can have at your disposal in these cases is purchase order financing. Not only will you have access to secure the necessary capital you need to purchase supplies or raw materials, but you also have the opportunity to develop a reputation as a business that fulfills orders in a timely manner. This alone can help fuel your growth.
Smaller PPE contracts for facilities such as nursing homes assisted living facilities, and restaurants may order smaller quantities of materials. Generally, you can fulfill their needs from inventory provided you have been able to maintain inventory. However, even in these cases, you may not receive payment for your products until 60 to 90 days following delivery — leaving you with insufficient cash flow to replenish your inventory. Invoice factoring can help bridge these cash flow gaps. Factoring allows you to supply products to your end customers, and when it comes time to issue them an invoice, you can use factoring to convert the account receivable into immediate cash.
Whether you need immediate capital to fulfill an existing purchase order, need cash to replenish your dwindling inventory, or are facing challenges with supply lines, you should consider contacting Capstone. We offer an entire suite of financial tools designed to help you succeed. Call us at (212) 755-3636 to speak with a representative today and let us help find a solution that works best to meet your current challenges.
