Cash flow challenges in manufacturing
Manufacturers often have to buy raw materials and fund labour costs weeks or months before they can ship finished goods and raise an invoice. Then they must wait for their customers, often large retailers or distributors, to pay on 30, 60 or 90-day terms. This structural cash flow gap is one of the most common reasons manufacturing businesses seek external finance.
Invoice finance resolves this by advancing funds against confirmed, raised invoices. Once goods are shipped and an invoice is raised, funds are available within 24 hours rather than after a 60-day wait.
Combining invoice finance with trade finance
For manufacturers who also import raw materials or finished components, invoice finance can sit alongside trade finance or supply chain finance facilities. This gives a complete working capital solution: trade finance funds the purchase of materials and goods, while invoice finance releases cash from sales invoices to repay the trade facility and fund the next production cycle.
Sector-specific considerations
Manufacturing lenders will assess the quality of your debtor book, including customer concentration (the proportion of your ledger owed by a single customer), credit quality of your debtors, and the nature of your invoices. Invoices subject to quality disputes or returns may attract a lower advance rate or be excluded from the eligible ledger.
Eligibility
- UK limited company in manufacturing, processing or production
- B2B sales ledger with invoices raised on completed and shipped goods
- Minimum 12 months trading history
- Evidence of genuine third-party debtors (not intra-group)
Frequently Asked Questions
Can I use invoice finance alongside an asset finance facility?
Yes. Invoice finance and asset finance are complementary products. Many manufacturers use both: asset finance to fund plant and machinery, and invoice discounting to manage the working capital cycle.
What if my debtor book is concentrated in one large customer?
Concentration risk is assessed by lenders. If one customer accounts for more than 25 to 30% of your sales ledger, the lender may apply a concentration limit or require credit insurance on that debtor. This is common in manufacturing.