Work order finance refers to the financial arrangements that manufacturers use to fund specific work orders or production projects. Loan against work order allows manufacturers to borrow money using a work order or purchase order. The manufacturer will present a work order from a reputable client to the lender, and in return, the lender will provide the manufacturer with a loan. This type of financing can be useful for manufacturers who have a long-term contract or a contract with a large value, as it can provide a sense of security to the lender that the manufacturer will be able to complete the work order or production order as promised.
Banks, NBFCs and other financial institutions offer various non-fund based lending services to the manufacturers who have a strong credit history but may not have assets or cash flow to use as collateral. This is usually done against letters of credit, bank guarantees, and performance bonds. A performance bond is a type of guarantee that is provided by a bank or other financial institution that the company will complete the work order as specified. On the other hand, a bank guarantee is a financial instrument in which a bank commits to pay a certain amount of money to a second party (the beneficiary) if the first party (the customer) fails to fulfill its contractual obligations.
Work order finance can help different types of manufacturers in various ways, depending on their specific industry and the nature of their work orders. Here are a few examples of how different types of manufacturers may use work order finance.
Work order finance can be a useful tool for manufacturers of all types and sizes, as it can. By availing loan against work order, manufacturers can maintain production levels, meet demand, and complete projects on time, which can help them to stay competitive and maintain profitability even during economic volatility. It is important for manufacturers to carefully evaluate the different forms of non-fund based lending services available to them and choose the one that best suits their specific needs and goals.