If your company makes seasonal products that will be sold during the holiday shopping season, you know you will have to fully stock your retail clients. That being said, working capital can pose many challenges for you, because you must invest now in materials and labor. What do you do when you know you won’t get paid for months?
Come up with a Working Capital Plan
To ensure your manufacturing company can meet demand, follow these steps.
- Prepare cash flow and sales forecast so you have a good idea of the money coming into and leaving your business to avoid surprises.
- Accelerate your income by renegotiating terms with your customers so you can get paid sooner.
- Reduce expenses by incorporating “lean manufacturing” processes to cut back on unnecessary costs, or negotiate more agreeable payment terms with suppliers so you can keep more money in your pockets for longer.
- Secure working capital in order to tap into finance purchase orders later.
- Prioritize working capital management by monitoring your working capital and comparing it with industry standards. Keep an eye on expenses and income.
Advantages of a Business Line of Credit
This can be a great source of working capital for any manufacturer and comes with many benefits, such as:
- Convenience: If you receive a large rush order and need the cash to get the materials, use a business line of credit from which you can draw funds as needed.
- Cash flow: You must begin paying back business loans right away, but with a line of credit, you don’t have to re-pay it until you actually take cash out of it.
- Control: With a traditional business loan, you must tell the lender what you are planning to use the funds for. If that use is not approved, you aren’t getting that loan. With a business line of credit, you’re in control because you can use the money for whatever business need you to want.
For more information on using lines of credit in your business, we recommend you read this book.