Business Line of Credit: The Lifeline for a Manufacturing Businesses

Does your company manufacture products that are sold during the holiday shopping season? As retailers get ready to gear up for their busy season, manufacturers are also preparing to supply their retail customers’ inventory needs. But for manufacturers, working capital can present special challenges. When you own a manufacturing business, you’ve got to invest in materials, labor and production now. But you may not get paid for months.

A shortage of working capital can lead to cash flow problems that bring your manufacturing business to a halt—right at the critical time of year. Proactively managing your working capital, however, ensures you have the money you need to take advantage of opportunities that arise during the holiday season. What if there’s a sudden surge in demand for your products due to coverage on social media or TV? Without the capital to increase production, you’ll miss potential sales. What can you do? A business line of credit can help with purchase order financing down the line.

Create a Working Capital Plan

To make sure your manufacturing business is ready to meet demand for your products start with these steps.

  1. Prepare a cash flow forecast and a sales forecast that take your business through the holiday season. When you have an estimate of how much cash will be coming into and going out of your business, you’re less likely to get caught by surprise. (Learn more about common cash flow mistakes that can slow your business down.)
  2. Accelerate your income as much as possible. Can you renegotiate terms with your customers to get paid sooner? If this isn’t realistic, be sure you are invoicing as soon as product is delivered and following up on invoices as soon as they’re overdue. Often, working capital problems can be traced to poorly managed receivables.
  3. Take steps to reduce expenses as much as possible. For example, instituting “lean manufacturing” processes may help you cut unnecessary costs. You can also see if you can negotiate better payment terms with your suppliers—this will allow you to keep cash on hand longer.
  4. Secure sources of working capital. Even if your working capital seems to be adequate, smart manufacturers are prepared for all possibilities. Start now to investigate working capital sources you can tap into to finance purchase orders, if necessary, later on.
  5. Make working capital management a priority. Monitor your working capital and benchmark it against industry standards. Even when cash is plentiful, carefully watch your expenses and income.

Benefits of a Business Line of Credit

A business line of credit can be the perfect source of working capital for a manufacturer. Some lenders determine credit eligibility based on the business owner’s personal credit score. Others require massive amount of paperwork to determine a business credit line. With Fundbox, personal credit score or time-consuming paperwork are not required to get started.

A business line of credit has many benefits for manufacturers compared to a traditional business loan. Here are some examples:

  • Convenience: Got a large, rush order and need cash to purchase materials? When you have an available business line of credit, this is no problem. For example, with Fundbox Credit, you can draw funds from your available credit anytime you want. If you don’t need the money, don’t use it. If you do need it, access your Fundbox business line of credit with just a few clicks.
  • Cash flow: You have to start paying back a business loan immediately—even if you aren’t using the money right away. With a business line of credit, however, you don’t repay the credit line until you actually draw money from it.
  • Control: When you get a traditional business loan, you have to show the lender what you plan to use the money for. If they don’t approve of that plan, you won’t get the loan. With a business line of credit, you can use the money for any business purpose you choose, so you’re in control.

Learn more about business line of credit solutions from Fundbox.

Rieva is a small-business contributor for Fundbox and CEO of GrowBiz Media, a media company focusing on small business and entrepreneurship. She has spent 30+ years covering, consulting, and speaking to small businesses owners and entrepreneurs.