Financial strain may have a significant impact on small manufacturers. Delayed customer payments, rising raw material costs, and the need to front large purchase orders often cause cash flow issues. But you don't have to go it alone. Access to reliable working capital helps ensure business continuity and seize growth opportunities as they arise. Let's explore the importance of working capital for manufacturers, popular solutions, and how you can access these funds more efficiently.

Working Capital: An Overview

Working capital is the difference between a business’s assets (e.g., cash, inventory, and receivables) and its liabilities (e.g., accounts payable and short-term debt). It represents a company's short-term liquidity and indicates its ability to meet short-term obligations and fund operations using readily available assets. Working capital provides small manufacturers with financial flexibility to purchase materials, cover payroll, manage production cycles, and fulfill orders without disruption, building resilience and supporting growth.

The Importance of Working Capital in Manufacturing

Timing is key in manufacturing, and working capital is essential for ensuring everything, from sourcing raw materials to delivering finished goods, stays on track. It isn't just about staying afloat. When deployed strategically, working capital helps you stay ready, responsive, and competitive.

Having accessible funds ensures you may be able to buy materials when needed and pay your team on time, even if customers delay their payments. Working capital also supports timely equipment maintenance and production readiness, minimizing costly downtime due to equipment failures. Moreover, it may help remove financial bottlenecks that may hinder scaling operations. For example, you may take on large orders or expand into a new market without waiting on receivables.

Common Working Capital Solutions for Manufacturers

Here are the most common financing solutions to help manufacturers bridge cash flow gaps and support day-to-day operations:

  • Lines of credit allow businesses to draw funds as needed. They may be ideal for covering short-term gaps, such as delayed receivables or urgent supply orders. You only pay interest on the amount outstanding.
  • Term loans may often be best for larger, one-time expenses such as equipment upgrades or facility improvements. Term loans are often disbursed in a single lump sum, which is repaid over a fixed term.  
  • Inventory financing enables manufacturers to use inventory as collateral to secure funds. It can take the form of a line of credit, term loan, or other borrowing structure. It may be a helpful option when unsold goods tie up capital, but cash is needed to fulfill new orders or restock.
  • SBA 7(a) loans are backed by the U.S. Small Business Administration (SBA), offering competitive rates and longer repayment terms. They may be ideal for manufacturers who meet SBA eligibility requirements and need funds for equipment or expansion.

To choose the right solution, consider your cash flow cycle, financing timeline, and long-term growth strategy.

Strategies for Accessing Capital Efficiently

Accessing working capital goes beyond applying for the right loan. You must run your business in a way that makes your company creditworthy and financially agile. For example, you should proactively monitor and forecast cash flow by regularly tracking inflows and outflows and anticipating shortfalls before they become problems. Cash flow management tools like PNC's Cash Flow Insight® may help you plan and manage your finances.

Optimize accounts receivable and payable cycles by tightening payment terms or offering early payment incentives. Also, negotiate extended terms with suppliers whenever possible to hold onto cash longer without harming relationships. 

Additionally, build a relationship with a manufacturing-savvy banker. A financial partner who understands your sector may offer tailored solutions and flag opportunities or risks early. Strong relationships also help facilitate approvals or secure more favorable terms. Remember, lenders want transparency. Therefore, you should maintain clean financial records, well-organized books, and timely reporting to demonstrate reliability.

Enhance Agility and Fuel Growth with Smart Capital Access

Access to working capital enables small manufacturers to cover day-to-day expenses, manage cash flow fluctuations, and seize growth opportunities. You may turn working capital into a strategic asset by proactively managing finances, building strong banking relationships, and selecting the right funding solutions with support from the right partner. Schedule an appointment with our experienced bankers to see how we may help you gain a competitive edge by achieving financial agility.