A McMinnville, TN manufacturer waiting on invoices usually fits a revolving line of credit when the gap repeats with every order, and a working capital loan when it is one large gap with a clear end. The line costs interest only while drawn; the loan has a fixed schedule whether the invoices clear early or late.
An article from Copperwater Commercial Capital in McMinnville, Tennessee on choosing between a working capital loan and a line of credit for a plant waiting on invoices, with Warren County, TN manufacturing counts, an invented material-to-invoice cycle and notes on collateral.
What Is Working Capital in Manufacturing? Worked Through for Warren County, TN Plant Owners
Working capital in manufacturing is the money tied up between buying material and getting paid for the finished goods: raw material and parts on the shelf, work in process on the floor, finished goods waiting to ship, and invoices waiting to be paid, less what the plant itself owes its suppliers. The larger and slower that cycle, the more cash the plant needs to run.
Manufacturing employed 2,805 people in Warren County, TN in 2023 and paid $170.1 million in annual payroll, both the largest of any sector, at 55 employer establishments (County Business Patterns).
Working Capital Cycle for Manufacturing Company: How Warren County, TN Manufacturers Use It
The cycle has four stages: buy material, make the product, ship it, collect the invoice. A plant that buys on 30-day terms, takes five weeks to produce and ship, and sells on net-60 terms carries every order for about three months, and pays its crew every two weeks the whole time.
Shortening any stage releases cash: a supplier willing to extend terms, a shorter production run, or a customer that pays sooner for a discount. Funding covers whatever gap remains.
Map the cycle for your largest customers first. A plant with one buyer on net-30 and another on net-75 runs two cycles at once, and the slower one usually sets the size of the gap. An aging report sorted by customer shows which is which, and it is the first report a partner asks for.
Working Capital Loan Unsecured for Warren County, TN Manufacturers
An unsecured working capital loan is read on the plant’s cash flow and the owner’s credit, usually with a personal guarantee, and tends to be smaller and shorter than a secured one. It suits a plant with steady statements and a gap it can describe precisely.
A secured line or loan takes receivables, inventory or equipment as collateral. Lines secured by receivables often set the limit as a share of eligible invoices, so the limit grows and shrinks with sales.
Working Capital Loan Collateral for Warren County, TN Manufacturers
- Accounts receivable: invoices to creditworthy customers, often the main collateral for a plant line.
- Inventory: raw material and finished goods, usually valued at a discount to cost.
- Equipment: machines the plant owns outright, with no lien.
- A personal guarantee from the owner, common for small plants.
Ask how the partner values each kind of collateral and what reports it will want each month. A line tied to receivables can require a borrowing base report, which is more paperwork but can support a larger limit.
An Invented Plant Cycle: Material Bought, Parts Shipped, Invoice Paid
Illustration only, invented figures: a plant buys $72,000 of material for an order on day 0, ships on day 35 and is paid on day 95. Payroll is $13,500 every two weeks, so 7 payrolls fall inside the cycle, $94,500 in wages; with the material, $166,500 goes out before the invoice is paid (our arithmetic).
On a line at an invented annual rate of 12%, if the balance averages half of $166,500 over the 95 days, the interest is about $2,600 (our arithmetic), and the line can be drawn again once the invoice pays. A working capital loan of $166,500 over 12 months at an invented annual rate of 13% costs about $11,956 in interest (our arithmetic), but the plant keeps paying it after the invoice clears.
Choosing Between the Two for a Warren County, TN Plant
If every order repeats the same cycle, the line fits: it rises and falls with the orders and costs interest only while drawn. If one large order or one slow customer creates a single deep gap with a clear end, the loan fits, and its fixed schedule makes planning simple. A plant can also use both: a line for the cycle and a loan for a one-time push.
- Map the cycle in days, from material purchase to invoice payment.
- List the payrolls and supplier bills that fall inside it.
- Decide whether the gap repeats with every order or is a single event.
- Ask each partner how it values receivables and inventory.
- Compare the interest on a line drawn for the cycle with the total interest on a loan.
A business line of credit, working capital loans, business term loans, business loans for manufacturing companies and the McMinnville, TN business page cover each option.
By Copperwater Commercial Capital · Updated
