Manufacturing Cashflow Crunch (2026):Pick LOC vs Working Capital vs Invoice Finance
Manufacturing cashflow crunch for inventory and WIP | Switchboard Finance
🏭 manufacturing · inventory + WIP · cashflow facilities ·
Business Owners Finance Hub · 2026
Manufacturing cashflow pain is predictable: raw materials paid now, product sits as WIP for weeks (or months), then the customer pays later on Trade Terms. This guide helps you match the right facility to your production cycle.
The three cashflow lanes live inside the same hub: Business Line of Credit, Working Capital Loans, and Invoice Finance. If you want the “how they work together” overview first, read: Business Cashflow System (WCL + LOC + Invoice).
1) The manufacturing pattern (why “generic cashflow advice” fails)
In most SMEs, cashflow is “pay bills, collect revenue.” In manufacturing, cashflow is a timeline problem: inputs paid upfront, value trapped in production, then invoicing and collections at the end.
The consequence of using the wrong product is ugly: you get a facility that doesn’t align to your cycle. That usually shows up as constant limit pressure, repayments at the wrong time, or funding that can’t flex when orders spike.
Before choosing a facility, label your crunch. Here’s the simplest way to frame it.
- Inventory build: raw materials bought now to secure supply or pricing (cash tied up early).
- Supplier prepayments: deposits, progress payments, or minimum order runs before work starts.
- WIP stretch: production cycle is long, so cash sits inside WIP before you can invoice.
2) Facility match by cashflow pattern (LOC vs WCL vs Invoice Finance)
Think of the three facilities as tools, not brands. The right one is the one that matches the cashflow shape: revolving, fixed, or receivables-driven.
If you choose based on “what’s easiest,” the consequence is usually the wrong repayment behaviour. You end up refinancing later (and explaining why) instead of getting it right first.
Use this table as your decision logic. It’s intentionally simple.
| Cashflow pattern | Best fit facility | Why it fits manufacturing | Common mistake |
|---|---|---|---|
| Recurring gaps (orders spike, supplier timing varies) | Business Line of Credit | Revolving Credit Limit that you draw and repay as production moves | Using it like a term loan → limit stays maxed |
| One-off crunch (large inventory buy, short window) | Working Capital | Structured Term Loan style repayment that matches a defined event | Choosing repayments that hit before invoices clear |
| Cash tied in invoices (you’ve delivered, waiting to get paid) | Invoice Finance | Turns Accounts Receivable into cash so WIP doesn’t starve the next run | Trying to fund receivables with generic debt |
3) Property-backed limits (how lenders size it — simple logic)
When a facility is property-backed, lenders can often size limits more confidently because the Security reduces risk. But they still check the story: the limit has to make sense for your production cycle and cashflow.
The consequence of asking for “a big number” with no sizing logic is pushback: reduced limits, extra conditions, or a slower credit path. You want to show a simple method that matches your cycle.
Use this sizing table as a starting framework — not a promise. It helps you explain the “why” behind the limit request.
| What you’re funding | Simple sizing method | What to show |
|---|---|---|
| Inventory build | Peak inventory spend over 30–90 days | Supplier quotes + last 3 months Bank Statements |
| Supplier prepayments | Deposits/progress payments for confirmed POs | POs + Tax Invoice / deposit schedule |
| WIP stretch | WIP duration × weekly cash burn (labour + materials) | Simple Cash Flow Forecast tied to production timeline |
| Slow-paying customers | Average receivables balance (or top debtors) | Accounts Receivable report + debtor ageing |
4) Upgrade bundle + pre-approval plan (don’t let plant upgrades break cashflow)
Manufacturing cashflow crunch often shows up right when you’re trying to upgrade plant. The mistake is mixing “capex upgrade” and “cycle funding” into one messy request.
The consequence is predictable: the lender can’t classify the request cleanly and you get delays (or the wrong structure). Keep upgrades in asset finance and keep cycle gaps in cashflow facilities.
Here’s the clean manufacturer bundle strategy. It also helps you get to Pre-Approval before the next order spike.
- Plant & machinery upgrades: place under Asset Finance (or Low Doc Asset Finance if bundling).
- Cycle gaps (inventory/WIP): pick one lane: Working Capital Loans or Business Line of Credit.
- Customer payment lag: use Invoice Finance when the issue is “paid later,” not “no orders.”
- Pre-approval trigger: submit before procurement locks in — don’t wait for the day deposits are due.
For cashflow warning signs to watch, read: 5 Cash Flow Warning Signs. For invoice finance basics in SME terms, read: Invoice Finance for Growing SMEs.
Manufacturing crunch = inventory paid early + WIP time + customers paying later. Match the facility to the pattern: revolving gaps → LOC, defined event → working capital, invoice lag → invoice finance. If you don’t, the consequence is constant limit pressure and slow approvals.
Start with the cashflow lanes: Business Line of Credit, Working Capital Loans, and Invoice Finance. For plant upgrades, keep it separate under Low Doc Asset Finance.
FAQ
If the gap repeats and you want flexible Drawdown access, a LOC is usually the cleaner fit. If it’s a defined one-off event, a working capital facility can match the timeline. If you pick wrong, the consequence is constant limit pressure or repayments hitting before cash lands.
When you’ve delivered and the cash is stuck in Accounts Receivable. Invoice finance funds the “paid later” leg so you can keep buying materials and running production. If you ignore this, the consequence is starving the next run while you wait for customers to pay.
Yes — because Trade Terms change the timing story. If your suppliers want prepayment but your customers pay late, lenders want to see how you bridge that mismatch. If you don’t explain it, the consequence is extra conditions or smaller limits.
Property-backed deals can give lenders more confidence in the Security position, but the limit still needs to fit your production cycle and cashflow evidence. If you just ask for a big number, the consequence is reduced limits or slower credit sign-off.
The fastest packs explain timing: recent Bank Statements, your BAS (if available), and a simple Cash Flow Forecast that maps to the production cycle. If you skip the timing story, the consequence is back-and-forth and delayed decisions.
Disclaimer: This content is general information only and isn’t financial, legal, or tax advice.
