The cash conversion cycle, plainly
A manufacturer pays for materials, turns them into products, stores them, ships them and then waits for payment. The time between the first purchase and the final payment is the cash conversion cycle, and the longer it runs, the more money the business has tied up in work in progress and finished goods.
Light manufacturers in the Los Angeles area, the Inland Empire and Orange County make everything from consumer goods to components and packaged products. They often operate in leased industrial space, with a small team and a few key machines, and sell to distributors, retailers or other businesses.
Five places cash gets stuck
Raw materials
Minimum order quantities and price breaks push owners to buy more than a single job needs.
Work in progress
Partly finished goods hold material and labor cost with nothing to show for it yet.
Finished goods
Units waiting for a shipment date or a buyer's pickup are cash on a shelf.
Receivables
Large customers commonly pay on net-30 to net-60 terms.
Equipment
Machines and tooling are large purchases that wear and sometimes fail.
Growth makes it harder before it makes it easier
A manufacturer that lands a bigger customer has to buy more material, run more shifts and hold more stock. Every one of those costs comes earlier than the new revenue. Owners who accept a large order without enough cash may find themselves unable to complete it on time, which damages the relationship they were trying to build.
| Growth step | Cash needed ahead of revenue |
|---|---|
| Larger first order | Material, labor and packaging |
| Second shift | Added payroll, utilities and supervision |
| New product line | Tooling, samples, certifications, inventory |
| Larger space | Deposit, move, installation |
A worked example
For illustration only, and not our terms: a small maker of packaged goods lands a purchase order from a regional retailer. The order requires twice the usual raw material, extra labor for a month and new packaging. The retailer's terms are net-45. The maker has to fund roughly two months of cost before being paid. With working capital in place, the owner accepts the order, meets the date and begins to build the relationship.
Equipment, tooling and the real cost of downtime
In a small plant, a single machine often carries a whole product line. When it stops, production stops, and orders slip. Preventive maintenance and planned replacement are cheaper than an emergency, but they compete with the daily need for material and payroll. Tooling adds a second layer: molds, dies and fixtures are made for specific products and have to be paid for before the first unit ships.
Owners who plan equipment purchases ahead of demand avoid the worst surprises. Those who wait until a machine fails pay more, and pay it at the worst time.
How to apply
You complete a five-minute application and share roughly three months of business bank statements. We use a soft credit pull, require no tax returns and consider FICO 500 and above. Funding ranges from $25,000 to $5,000,000, with money possible in as little as 24 hours. Sole proprietors can apply. Open the application.