Seven criteria set before we assessed anything. What each structure advances against, where in your cycle it lands, what it costs, and what it demands of your controller every month.
Updated [MONTH YEAR] · Criteria unchanged since [MONTH YEAR]
What we test, and why these seven
The criteria come first. Anyone reaching a verdict before naming their test is selling. These seven decide whether a structure fits a production business, and they were fixed before we assessed a single one.
What it advances against
Receivables are the easy line. Whether the structure also reaches raw materials, work-in-process, finished goods, and equipment decides how much of your balance sheet is usable at all.
Where in the cycle it lands
Your gap has a location. Day 0 materials, Day 60 invoice, or the whole 90. A structure funding the back of your cycle does nothing for a manufacturer whose problem is the steel.
Advance rate
The percentage of the asset arriving as cash. Receivables advance high almost everywhere. Work-in-process is where structures separate, and a $2M collateral base returning a $200K advance failed this criterion.
Speed to cash
Measured from complete application to money in the account, never to approval. A 14-month payback loses value every month it waits.
Cost against the work it opens
Not the headline rate. The all-in figure set against the margin on the order the cash lets you accept. A structure costing 3% to capture a 22% margin job is arithmetic, not a rate shop.
What it demands monthly
Borrowing base reports, field exams, customer notification, compliance packages. Days out of your controller's month are a cost, and no rate sheet lists them.
Scaling behavior
Whether the facility grows against your receivables or caps at a number set the day you signed. A line renewed flat for three years while you grew 60% failed this criterion.
The five structures
- Bank line of credit
- Invoice factoring
- Asset-based lending
- Purchase order financing
- Equipment financing
Four and five are one structure across two halves of the same order. PO financing funds the build. Factoring converts the invoice after delivery. A $300K PO facility funds production, factoring against the $500K invoice funds the receivable, and the order-to-cash cycle is covered front to back.
Which one is yours
No structure wins. A structure fits a configuration, and four do not. Find your row.
Your gap is the steel
Materials due on Net 30, customer paying on Net 60, production in between. PO financing lands at Day 0 against the confirmed order. Factoring lands at Day 60 and arrives too late to buy the steel.
Your gap is the invoice
Materials funded, job shipped, customer sitting on Net 60. Factoring converts the invoice inside 24 to 48 hours. PO financing has nothing to attach to, because the order is already built.
Your capital is on the floor
$2M in raw materials and work-in-process against a $200K bank advance. An asset-based facility built for manufacturing advances against the full collateral base. Factoring reaches the receivable only and leaves the floor unfunded.
Your gap is capacity
The machine adds $800K in annual revenue and pays back in 14 months. Equipment financing is a revenue decision. Funding the machine out of a working capital facility charges your cycle for an asset outliving it.
Your bank line already covers the cycle
It renews with your order book and the advance reflects your asset base. You have the cheaper answer. Nothing on this page improves on it.
Your gap is structural
The job is unprofitable at the quoted price. No structure on this page fixes that, and every one of them funds the loss faster. Fix the quote.
FAQ
Do I have to pick one?
No, and most manufacturers past a certain scale run several. PO financing and factoring cover opposite halves of the same order. An asset-based facility and equipment financing sit against different collateral. The constraint is whether the liens conflict, which is a documentation question rather than a strategy question.
Which is cheapest?
A bank line, when you qualify for one sized to your cycle. Everything else on this page exists because that condition fails often. The better question is what a structure costs against the margin it lets you capture.
Does factoring mean my customers find out?
Under a notification facility, yes. Your customer is told where to send payment. Manufacturers worry this signals distress, and buyers at large manufacturers see factored invoices constantly and read them as ordinary. Non-notification structures exist and cost more.
Read next
- The full math for your configuration
- What banks will not lend against
- PO financing for manufacturers
- Manufacturing financial benchmarks
- Factoring mechanics and cost: FactoringInsider.com
- Asset-based facility structure: AssetBasedLending.guide