Operating capital is vital in manufacturing because everything about the cost of producing your goods must be handled weeks or even months in advance of a customer’s payment. From raw materials to the energy needed to run your machines and even payroll, you have to be able to meet those outgoing costs to keep running. Lines of credit can be a vital part of that happening smoothly.

Move Away From Running on Invoices

Unless you have an impressive reserve capital pool that self-funds your budget in advance, your cash flow depends on your income to keep going. You might be a week or a month ahead with working capital, but if payments slow down, that can catch up to you quickly. Credit lines allow you to meet your outgoing commitments as they come up, essentially allowing you to use the line for your budget and then repay when your invoice payments come in. That provides a buffer between your working capital pool and your incoming payments.

Provide a Long-Term Solution To Cyclical Downturns

When your business has money coming in fast enough to run on working capital for weeks or months without needing a credit line, you can simply let it lie dormant. It is reusable as needed when there is a balance open, and is typically only subject to a small annual fee if left open and unused. That lets you avoid the financing charges involved with constant use and keep an open source of excess capital for when your business cycle changes over again.

Finance the Cost of Big and Unexpected Orders

Apart from cash flow management, a credit line can also be a good rainy-day resource for financing short-notice orders and those that are larger than you are used to accommodating. Whether you use a separate form of financing or not, the line of credit can be there to cover the startup costs of orders that would otherwise break your budget. That means you only need to fund a job up front when it suits you to do so, allowing you to set budgets based on your capital on hand confidently. Credit lines also tend to enjoy a short grace period, so if you turn the job around quickly you can minimize the cost of financing.

If your company owns the building, you can probably use it to back a business credit line that gives you more flexibility when it comes to managing the costs of production. It’s worth looking deeper into it today.