Work-in-process (WIP) financing, also known as production financing or supplier financing, is a funding option for businesses looking for assistance in covering supplier expenses, intended only for projects or goods in the process of being built or worked.
WIP financing is a popular financing method for businesses in the manufacturing realm, given it’s often difficult for those businesses to find flexible financing solutions. WIP financing offers a specialized solution that addresses the unique challenges in the manufacturing industry.
Here’s a quick breakdown of the typical WIP financing process:
1. You receive a manufacturing order from a client
2. When you are ready to purchase raw materials, you will place an order through your WIP financing company
3. The financing company orders the materials you need from your supplier, fronting the costs
4. Your supplier delivers your order
5. Once the manufacturing is complete, your client pays for their order via a payment to a lockbox account that has been set up by the financing company
6. The WIP financing company releases the client’s payment to you, minus the cost of the supplies and their financing fees