Managing Cash Flow Between Large Orders

Your best customer just placed a $400,000 order. The problem: they pay net-90. You need to purchase $200,000 in materials immediately, fund 8 weeks of labor, and still make payroll on your other projects. Meanwhile, your bank account shows $150,000.

This is the cash flow reality for most manufacturers. Extended payment terms from creditworthy customers create predictable revenue but unpredictable cash positions. This guide covers the financing tools and strategies to bridge the gap between when you spend money and when you collect it.

The Manufacturing Cash Conversion Cycle

Understanding your cash conversion cycle reveals why manufacturers consistently face working capital pressure:

• Raw material purchase: Cash out Day 0 (or net-30 from suppliers if you have credit)
• Production time: 2-8 weeks of labor, utilities, consumables
• Finished goods shipped: Inventory converted, invoice generated
• Customer payment terms: Net-30, net-60, or net-90 from invoice date
• Cash in: 60-120 days after initial material purchase

A manufacturer with 4 weeks of production time and net-60 customer terms experiences an 88-day cash conversion cycle. Every dollar invested in production takes nearly 3 months to return as cash.

Working Capital Financing Options

Several financing products help manufacturers bridge the cash gap:

Business Lines of Credit: The Foundation

A revolving line of credit should be the foundation of manufacturing working capital strategy. Draw funds as needed, repay as receivables come in, and redraw for the next order cycle.

Lines of credit work best when established before you desperately need them. Apply when your financials are strong and business is steady. Typical lines for manufacturers range from $50,000 to $500,000, with larger facilities for established companies.

• Draw flexibility — Access only what you need, when you need it
• Interest efficiency — Pay interest only on outstanding balance
• Revolving structure — Funds become available again as you repay
• Relationship building — Establishes track record for future financing

Invoice Factoring: Immediate Cash from Completed Work

Factoring converts your accounts receivable into immediate cash. You sell invoices to a factoring company at a discount and receive 80-90% of the invoice value within 24-48 hours. The factor collects from your customer and remits the remaining balance minus their fee.

Factoring works particularly well for manufacturers selling to creditworthy customers like major retailers, government agencies, or Fortune 500 companies. The factor cares more about your customer credit than your own financials.

• Advance rate: 80-90% of invoice value upfront
• Factor rate: 1-4% per 30 days outstanding
• Collection: Factor collects directly from your customer
• Recourse vs. non-recourse: Non-recourse factors absorb bad debt risk (at higher cost)

Example: You factor a $100,000 invoice at 85% advance with a 2% monthly factor fee. You receive $85,000 immediately. When your customer pays at day 45, the factor sends you $11,500 ($15,000 reserve minus $3,000 in fees for 1.5 months).

Asset-Based Lending: Borrowing Against Receivables

Asset-based lines of credit (ABL) let you borrow against accounts receivable and inventory without selling the invoices. Your borrowing base fluctuates with your eligible collateral.

ABL facilities are more complex than factoring but often less expensive for manufacturers with consistent receivables. Typical structures:

• Receivables advance rate: 80-85% of eligible receivables (under 90 days)
• Inventory advance rate: 50-65% of eligible inventory
• Interest rate: Prime + 2-6% on outstanding balance
• Monthly monitoring: Lender reviews your receivables and inventory monthly
• Minimum size: Most ABL facilities start at $500,000+

Example Scenario: Bridging a $400,000 Order

Situation: A precision metal stamping company with $6M annual revenue receives a $400,000 order from an automotive supplier paying net-90. Current cash: $150,000. Existing line of credit: $200,000 available.

Cash requirements: Raw materials (steel, tooling): $180,000 (needed immediately). Labor through production (6 weeks): $90,000. Overhead allocation: $30,000. Total cash needed before payment: $300,000.

Financing approach: Draw $150,000 from line of credit for materials (leaving $50,000 buffer). Negotiate net-30 terms with steel supplier for $30,000 portion. Fund labor from operating cash flow as work progresses. Factor the $400,000 invoice upon shipment at 85% advance ($340,000). Repay line of credit ($150,000) and supplier ($30,000). Net cash position: $160,000 plus $51,000 arriving when customer pays factor.

Cost of financing: Line of credit interest (2 months at 12%): ~$3,000. Factor fee (90 days at 1.8%/month): $19,440. Total financing cost: $22,440 on a $400,000 order (5.6%).

Result: Order completed profitably despite cash flow timing mismatch. Company maintains operations on other projects throughout.

Negotiating Better Terms: Upstream and Downstream

Financing solves the immediate problem, but improving your terms reduces ongoing working capital needs:

• Supplier terms: Push for net-45 or net-60 from material suppliers. Many will extend terms for consistent customers.
• Customer deposits: Require 20-30% deposits on large custom orders. This is standard practice, not unusual.
• Progress payments: For long production cycles, structure milestone payments at 30%, 50%, and final delivery
• Early payment discounts: Offer 2% discount for net-10 payment. Some customers will take it.
• Payment term negotiation: Push back on net-90 when possible. Net-60 should be maximum for strong customers.

Cash Flow Forecasting for Manufacturers

Proactive cash management requires visibility into future cash positions:

• 13-week cash flow forecast — Rolling weekly forecast of cash in and out
• Order-level tracking — Cash timing for each major order in production
• Receivables aging — Monitor collection patterns by customer
• Inventory turns — Track how long raw materials sit before becoming receivables
• Seasonal patterns — Many manufacturers have predictable busy/slow cycles

The goal is to see cash crunches 30-60 days before they hit, giving you time to arrange financing at better rates than emergency borrowing.

When Cash Flow Problems Signal Bigger Issues

Persistent cash flow challenges sometimes indicate underlying business issues:

• Margin erosion — If you are chronically cash-strapped despite steady revenue, check gross margins. Pricing may need adjustment.
• Customer concentration — One large customer paying slowly can sink your cash position. Diversify where possible.
• Inventory bloat — Excess raw materials or slow-moving finished goods tie up cash unnecessarily
• Over-expansion — Growing revenue faster than working capital capacity
• Collection weakness — If receivables age beyond terms, you have a collections problem, not just a timing problem

Building Long-Term Working Capital Capacity

Short-term financing solves immediate needs, but sustainable growth requires building working capital capacity:

• Retained earnings — Every dollar of profit retained builds permanent working capital
• Bank relationships — Establish lines of credit during good times, expand them as you demonstrate performance
• SBA working capital loans — 7(a) loans for permanent working capital carry lower rates and longer terms
• Equity investment — For significant growth, additional equity capital may be appropriate
• Operational efficiency — Reduce cash conversion cycle through faster production, better inventory management, tighter collections

Getting Started

If you do not have working capital financing in place today, address this before the next large order arrives:

• Assess your cash conversion cycle — How many days between cash out and cash in?
• Calculate working capital needs — Based on sales volume and conversion cycle
• Apply for a line of credit — Do this when you do not desperately need it
• Identify factoring partners — Have relationships ready to activate
• Improve forecasting — Implement weekly cash flow projections

Manufacturing cash flow management is not about avoiding the gap between expenses and collections—that gap is inherent to the business model. It is about having the financing tools and discipline to bridge that gap profitably and predictably.

Liminal can help you compare lines of credit, factoring, and working capital loans for your manufacturing operation. Our marketplace is free, takes about 2 minutes, and shows you offers without impacting your credit score.