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Understanding the manufacturing cash cycle
A manufacturer buys raw materials, converts them into finished goods, and then waits for customers to pay — often on 60- to 90-day terms. During this cycle, cash is locked in stock and debtors. The longer the production run and the more generous the customer payment terms, the larger the working capital requirement.
This structural cash gap is the primary funding problem for most manufacturing companies. It cannot be solved by profitability alone; a growing manufacturer can be profitable on paper while being cash-constrained in practice.
Invoice finance and trade debtor facilities
Invoice discounting and factoring allow a manufacturer to draw against the value of sales invoices raised, rather than waiting for payment. A facility advance rate of 75–85% of eligible debtor value is illustrative; the exact rate depends on debtor concentration, payment history, and whether the book is domestic or export.
Confidential invoice discounting — where customers are unaware that invoices have been assigned — is typically available to companies with turnover above a threshold set by the provider. Below that, disclosed factoring (where the provider manages collections) may be the only route.
Stock and supply chain finance
Some lenders will advance against raw material stock or work-in-progress, though this is more complex than debtor finance because stock is harder to value and realise. Warehousing arrangements, stock audits, and first-charge security over inventory are typically required.
Supply chain finance — where a lender enables the manufacturer to pay suppliers early (often at a discount) by extending the manufacturer's own payment terms — is increasingly available through specialist providers and benefits both parties in the supply chain.
Machinery and plant investment
CNC machines, presses, laser cutters, injection moulding equipment, and industrial robots represent significant capital investments with long useful lives. Finance lease and hire purchase are the standard instruments, allowing the company to use the asset immediately while repaying over three to seven years.
Sale and leaseback of existing production equipment is an option for companies that own machinery outright and wish to release capital for working capital or further investment without disposing of the asset.
Export and currency considerations
Manufacturers selling internationally face additional complexity: export receivables may be in foreign currency, buyer creditworthiness is harder to assess, and payment cycles are often longer. Export invoice finance and letters of credit provide both funding and credit risk mitigation on overseas sales.
Currency exposure should be managed separately — hedging instruments are outside the scope of business lending, and directors should confirm currency strategy with their treasury adviser or bank.
Frequently asked questions
Can a manufacturer borrow against work-in-progress?
WIP lending is less common than finished-goods or debtor finance because WIP has limited realisable value if the lender needs to enforce. Some specialist asset-based lenders will include WIP within a broader facility at a lower advance rate, subject to stock audit and sector knowledge.
How does R&D tax credit timing affect manufacturing cash flow?
R&D tax credit refunds from HMRC can represent significant sums but may take six to twelve months to process. Some lenders offer R&D tax credit loans — advancing against the anticipated credit before HMRC pays out. Confirm eligibility and credit value with your tax adviser before pursuing this route.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.