Sector
Manufacturing and engineering
A services business delivers the work, then waits to be paid. A manufacturer has usually spent the money well before that: on raw materials, on labour and overheads sitting in work in progress, and sometimes on finished stock waiting for a buyer. This page is for contract manufacturers, engineering subcontractors and small-batch producers whose cash is tied up in the making, not just the selling.
How money moves
The cash is spent before there's anything to invoice
As an illustration, a manufacturer holding six weeks of raw material and three weeks of work in progress has cash committed for around nine weeks before an invoice exists, and then waits for the customer's terms on top.
MaterialsPaid out
- Raw materials and components bought
- Paid on the supplier's terms
- Held until production starts
ProductionCost held in stock
- Labour and overheads go into work in progress
- Finished goods wait for dispatch, or for a buyer if built to forecast
CustomerIncome
- Goods delivered and invoiced
- Customer pays on its terms
Invoice finance only starts at the last lane. Everything before it, from paying for materials to dispatch, is cash the manufacturer funds itself.
That cost is real, not notional. Under the accounting rules for small companies, the production cost of stock is the purchase price of the raw materials and consumables used plus costs directly attributable to production, and may include a reasonable proportion of indirect production costs (Small Companies and Groups (Accounts and Directors' Report) Regulations 2008, Schedule 1, paragraph 27).
Where the sector gets misread
What a generalist lender sees, and what's actually happening
Strong, fast-paying customers, so cash should be fine
The squeeze sits in front of the receivable, in materials and work in progress. Good debtors don't release cash that hasn't reached an invoice yet.
Stock as one number on the balance sheet
The small company balance sheet format shows stocks as a single line, while the format for larger companies splits out raw materials, work in progress and finished goods. The split a lender needs often isn't in a small manufacturer's accounts at all.
A new machine and more headroom as one borrowing request
They are two different needs. Plant and tooling are a capital asset; the production cycle is working capital. Blending them tends to produce a facility that's the wrong shape for both.
The measure that matters
Days from material purchase to cash received, not debtor days
Debtor days only measure the last stage. The number that shows the real gap runs from paying for materials, through production and any time finished goods wait, to the customer's payment landing.
Because small company accounts can show stock as one line, the useful evidence is usually management information: stock split by raw materials, work in progress and finished goods, and how much finished stock is built to confirmed order rather than forecast.
Where finance fits
Fund the stage where the cash is actually stuck
A facility can fund the time cash spends in materials and work in progress. It can't make a production process that holds more stock than the order book needs any leaner.
Where the receivable itself is the strong asset and stock genuinely isn't the constraint, that's a receivables-led case rather than this page. Market Invoice compares UK invoice finance providers; it is run by Best Business Loans Ltd, a separate company under the same ownership as Muswell Rose Consulting Ltd, which operates Established Finance.
Sources
Where these points come from
Talk it through
Need another perspective?
Describe where things stand in a sentence or two: who pays, how, and where the gap sits. We'll tell you whether it's something we can help with. There's no charge for this.
Thank you. It's with our team now.
A person reads every enquiry and we'll come back to you with what we think the right next step is. No obligation at any point.
What happens next
- A person on our team reads it against how businesses in this sector are actually paid.
- If we can help, we introduce you to a specialist partner we have vetted and tell you who they are.
- No charge and no obligation at any point. You decide whether to go further.
Adam Parker
Founder of Muswell Rose Consulting Ltd, which trades as Established Finance · former Managing Director of Penny, an invoice finance business, with 15+ years across mortgages, commercial finance and fintech lending.
Last updated:
Practical questions
Before you get in touch
What information do I need?
To start, just a description of what’s actually happening in the business. If it progresses, the specialist partner will ask for the usual things: recent accounts, a sense of turnover and trading history, and details of the specific need.