What Is a "toll Manufacturing Agreement"?

Toll manufacturing occurs when one company processes goods or raw materials on behalf of another company through an agreement, according to BusinessDictionary. Toll manufacturing is also known as toll processing.

Custom Milling & Consulting notes that outsourcing labor is a good option for companies that may not have the necessary skills and equipment to process materials. A company that performs the service charges a fee, otherwise known as a toll, for completing the project. Toll manufacturing usually manifests into a long-term agreement between both parties. Toll processing companies may also serve as consultants in addition to performing services. A few benefits of toll manufacturing include no investment, predetermined costs and no additional equipment. Toll processing may also transition a project from the developmental stage to official production and completion.