Business credit for contract manufacturers and assembly shops
In most industries your credit file affects your borrowing cost. In contract manufacturing it affects whether a customer awards you the program at all.
The cash problem, in numbers
Contract manufacturers fund materials long before anyone pays for the finished assembly. The public companies publish exactly how long.
From FY2025 public filings and earnings releases. Plexus described its 63-day figure as its best in five years, after seven consecutive quarters of inventory reduction.
Two months of working capital tied up is the good outcome, achieved by companies with treasury departments. And component conditions in 2026 have been pushing the wrong way: DRAM has run at 52-week lead times on allocation, polymer capacitors have stretched toward 50 weeks, and prices on AI and automotive passives have moved up 15% to 35%. Longer lead times mean more inventory, which means more cash.
Now layer on the margin structure. Gross margins in the high single digits to low teens, GAAP operating margins around 2.9% to 5.0%, and net margins that have run from under 1% to roughly 4%. There is very little internally generated cash to absorb a working capital build.
Why purchase order financing usually will not save you
The instinct when a large program lands is purchase order financing — borrow against the PO to buy the components. It is a real product and it does not fit most CMs.
PO financing commonly prices at 1.5% to 3.5% per 30 days, with manufacturing and assembly deals at the upper end and advance rates of only 50% to 70%. More decisively, providers typically require a minimum gross margin around 20% for the economics to work at all.
Run it: a $200,000 order at 25% gross margin held 60 days costs roughly $7,500 in fees. On a 25% margin job that is survivable. On a 10% gross margin EMS job, the fee consumes a large share of the entire gross profit and the deal makes no sense.
The conclusion is not that CMs cannot borrow. It is that they need cheaper, structural capital rather than transactional capital — asset-based lines, receivable facilities, and equipment financing that leaves working capital intact. Kimball Electronics, for scale, has moved hundreds of millions through supply chain financing and receivable purchase agreements. The tools exist; they are credit-dependent.
The credit file itself
PAYDEX deserves a precise reading, because contract manufacturers are structurally tempted to stretch payables — it is one of the few levers on the cash cycle. But the score is built on payment timing: 80 means paying exactly on terms, 70 corresponds to roughly fifteen days late, and 50 to about thirty days late. Managing DPO up to 70 days by paying late rather than by negotiating terms will show up in your file, and your OEM customers can pull that file.
On FICO SBSS, note the SBA minimum for 7(a) Small Loans moved to 165 from 155 effective mid-2025. A great deal of published guidance still cites the old number.
The reporting problem
Here is what frustrates shops that have paid every distributor on time for years: only around ten thousand of the several hundred thousand US suppliers report account activity to the business credit bureaus, and each decides independently whether and when.
D&B will not generate a PAYDEX until it has two reporting trade lines and three trade experiences, and only invoices carrying payment terms count. Expect a D-U-N-S number in days, vendors beginning to report over one to three months, a first score around 90 to 120 days, and one to three years for a genuinely strong file.
So the strategy is not "pay on time." You already do. It is to concentrate spend with counterparties that report and ask the question directly — of your component distributors, and of every lender. When you finance a reflow oven or a pick-and-place line, ask whether the lender reports payment experience and to which bureaus. Many do not, and it cannot be fixed after signing.
One correction worth making: you will see advice claiming that the UCC-1 a lender files to perfect its interest builds credit as a trade line. It does not. A UCC filing is a lien notice with no payment history attached. What it does affect is future borrowing — and scope matters, because a blanket lien over all business assets can block an asset-based lender outright, which for a CM is the facility that actually solves the cash cycle. Keep equipment filings equipment-specific.
What your customers are looking at
OEM supplier qualification is not only about certifications, though those matter — ISO 9001, AS9100 for aerospace, ISO 13485 for medical devices, IPC-A-610 for workmanship. AS9100 alone commonly costs a small shop $12,500 to $29,000 in the first year and $20,000 to $45,000 across a three-year cycle.
Alongside that, published guidance on evaluating EMS partners points at exactly the signals a lender watches: inventory trends, receivables growing faster than sales, extraordinary losses, and whether earnings come from operations or from asset sales. A customer about to place a multi-year program is making a credit decision whether or not they call it one.
Which produces a useful reframing. Financial strength is not overhead in this business. It is a sales asset. A clean balance sheet, a real credit file, and committed facilities are part of what wins programs against competitors who cannot demonstrate them.
Where equipment financing fits
SMT and assembly equipment is capital-intensive: a full line runs from roughly $200,000 for a mid-range configuration into the millions at the high end, with pick-and-place typically 60% to 70% of the cost. Published US list prices give a sense of the pieces — reflow ovens from around $12,995 benchtop to $84,995 for a ten-zone machine, and vision-equipped pick-and-place from roughly $24,000 to $39,500 at the smaller end.
The financing principle for a CM is simple and follows directly from the cash cycle: never buy production equipment with working capital. Equipment is a five-to-seven-year asset with a resale market. Inventory is a sixty-to-hundred-twenty-day commitment with no resale market if a program is cancelled. Cash belongs against the second one.
The bottom line
Contract manufacturing runs a long cash cycle on thin margins, which means external capital is not optional and the cheap forms of it are credit-gated. Build the file deliberately, keep UCC filings narrow so an asset-based facility stays available, resist managing cash by stretching payables, and finance equipment rather than buying it out of the account that funds components.
Our guide to corporate only equipment financing covers borrowing without a personal guarantee once the file supports it.
Frequently asked questions
Why do contract manufacturers run out of cash even when profitable?
Because of the cash conversion cycle. Public EMS companies report roughly 63 to 67 days between paying for materials and collecting from customers, with days inventory of 69 to 118 and DSO around 50 to 57. On gross margins of roughly 9% to 10% and net margins often under 5%, there is very little internally generated cash to fund a working capital build, so growth consumes cash faster than it produces it.
Can a contract manufacturer use purchase order financing?
Often not economically. PO financing typically prices at 1.5% to 3.5% per 30 days with advance rates of only 50% to 70%, and providers generally require around 20% gross margin for the structure to work. Since EMS gross margins commonly run 8.8% to 10.2%, the fees consume too much of the gross profit. Asset-based lines, receivable facilities, and equipment financing are usually the better structural answer.
How much customer concentration is too much for a contract manufacturer?
SEC rules require public companies to disclose any customer above 10% of revenue, which is the practical alarm line, and lenders commonly treat a single customer above 20% as elevated risk. For context, Kimball Electronics disclosed three customers at 18%, 11%, and 11% of net sales, roughly 40% combined. Note the 20% threshold is industry convention rather than a published standard.
Do OEM customers check a contract manufacturer's financials?
Yes, in substance if not always by that name. Published guidance on evaluating EMS partners directs OEMs to review inventory trends, whether receivables are growing faster than sales, extraordinary losses, and whether earnings come from operations rather than asset sales. A customer placing a multi-year program is making a credit decision, which is why financial strength functions as a sales asset in this industry.
Should a contract manufacturer buy SMT equipment with cash?
Generally no. Equipment is a multi-year asset with a resale market, while component inventory is a 60-to-120-day commitment with little resale value if a program is cancelled. Given a cash conversion cycle around two months, cash is far better held against inventory and receivables, with production equipment financed over its useful life.
Adding capacity for a new program?
We will structure the equipment so your working capital stays where the components are. Soft credit pull, no obligation.
This article is general information about commercial equipment financing and is not tax, legal, or financial advice, nor a commitment to finance. All figures are illustrative examples, not offers or quotes. All financing is subject to credit approval and underwriting. Rates, terms, and approval depend on the complete business and credit profile.