Business Lines of Credit Might Be the Answer to Working Capital Problems in the Manufacturing Industry
One of the challenges in the manufacturing industry is trying to maintain inventory and meet demand while also maintaining your working capital. The main reason for this issue is that you often sell to buyers and then have to wait months to get paid. In the meantime, more orders come in, but you have little capital to keep things running. This can put you in a bad situation. A possible solution is manufacturing industry financing options that allow you tobuy inventory now and pay later.
Line of Credit
A line of credit is similar to a credit card. A lender provides you with a pre-approval to borrow up to a certain amount of money. You do not have to use the line of credit right when you acquire it. You can use it any time you need extra money. You only pay when you borrow money.
How It Works
Having the option to tap into your credit and borrow when you need allows you to prepare for busy seasons when demand is very high. For example, during the holiday season, retailers want to stock their shelves. They look to you to provide them with products. You bill them and they get to wait to pay until they sell the stock. Meanwhile, you have other orders coming in and your working capital gets low. This is when you can go to your line of credit and use it to buy stock so you can fulfill the orders coming in. When you start getting paid on the outstanding invoices, you can pay back your lender.
The application process for a line of credit is probably one of the easiest and quickest of any manufacturing industry financing option. The terms are also very flexible. You can often get what you need far ahead of time. So, if you know you often have a budget crunch at a certain time of year, you can prepare by getting a pre-approval for a line of credit. That way it is there when you need it.
Is Line of Credit Right For You?
To know if this type of financing is right for you, make a forecasted budget for the year. See if you have periods where you may struggle due to having unpaid invoices. Check for times throughout the year where having access to some extra money might be helpful. Also, make sure after these slow periods you have an upswing where you can easily pay back money borrowed.
A line of credit is a great manufacturing industry financing option. It allows you to get money only when you need it and to prepare for those times of the year when you face a financial crunch due to high demand.