Work-in-process (WIP) financing is a type of funding that helps cover the supplier expenses of companies that manufacture or assemble goods. Another name for this is also production financing.
Often times companies that manufacture or assemble goods often have a hard time getting financing. When they finally do get finance, g the solution is inflexible which leaves companies unprepared to capitalize on certain opportunities.
This is where Work-in-process financing comes in to help solve this problem. It provides a platform that allows you to purchase the materials you need to operate your manufacturing/assembly line. In turn, this purchasing power enables you to fulfill orders, build inventory, and grow the business.
Supplier financing is a simple solution. A financing company intermediates purchases between your company and its suppliers. Whenever you need to buy product from your suppliers, you place an order with the finance company. The finance company provides you with trade credit and places a corresponding order with your supplier.
Your supplier manufactures and delivers the raw materials (or products) that you need. The finance company pays the supplier and then sends an invoice to you. Your company pays that invoice at maturity.
Supplier financing can be used alone or combined with other types of financing. Since it is not a line of credit, there is no requirement to file a lien against any of the collateral your company has. This facility does not interfere with other forms of financing. However, you need to check your covenants with your lender to ensure compliance.
Supplier financing has some advantages as a WIP financing solution. It is not tied to any specific purchase order. The solution does not depend on your inventory being pre-sold or on a customer who has a specific creditworthiness. You are free to use it to fulfill any order or to build inventory.
Supplier financing is a selective facility. You use it only when you need it. Most WIP financing solutions require you to disclose their use to your customers. This requirement can make these solutions cumbersome to work it.
This solution is available to small and midsize companies that meet our qualification criteria. To qualify, your company needs to have the following: