What is Manufacturing Finance?
Several countries around the world are renowned as coveted manufacturers. British-based manufacturers are one such example. It can be said that British-manufacturers are envied all over the world. This faith, customers entrust to British-manufacturers, extends to manufacturers of different calibers. What causes this difference? What governs the manufacturing finance and quality of these businesses?
Manufacturing is a cash-dependent sector. However, the cash flow for manufacturers is not always easy to come by or balance. Businesses usually purchase inventory and equipment that are expensive. These particular assets carry a lot of capital tied around them. Furthermore, businesses also incur expenses for rent, leases and suppliers.
Settling these payments can be a burden for a manufacturing business. Long sales and lengthy payment terms can intensify the necessity for cash for a business. Sometimes it can take upto a year or more from the initial interaction with a client to the date of sale. The company incurs the production cost until it gets paid in a situation like this.
Manufacturing finance provides a way for manufacturers to ease the burden of these financial pressures by generating the necessary cash flow in advance. Therefore, manufacturing finance covers the manufacturing-related costs of a business. When considered in the long-term, this grants financial flexibility and increases the potential of the business to grow.
Other Terms To Know!
1. Cycle Time
Cycle time is the amount of time a manufacturer takes to complete one production item. For calculation of cycle time machine time, assembly time and movement time are considered.
2. Inventory
Inventory consists of the raw materials necessary for production. It also includes the work-in-process, the partially finished products that the manufacturers purchased or produced. Manufacturers usually keep records of how fast their inventory refreshes and make adjustments in the production quality and distributors, accordingly.
3. Cash on Hand
This is the amount of cash you have in your accounts or property. Knowing the exact amount of cash on hand is vital to successfully forecast the future of the manufacturing processes. Cash on hand number, seen on the balance sheet, undergoes daily fluctuations. It is wise to track this value often.
4. Manufacturing Business loans
Depending on your needs, it may be necessary to obtain financing in the form of business loans. Credit lines and equipment term loans can provide generous funding.
A credit line covers the necessities between the cash flow from the invoices paid and payment of payroll and bills. An equipment term loan is a special loan that allows you to purchase equipment. Thereby, allowing you to enhance your financing flexibility with employees and suppliers while funding the cost of the equipment.
