Story 2

In regards to inventory, the big problem is that typically a manufacturer expects you to make payment upfront before production begins. However, retailers expect to pay you 30 to 90 days after they receive the order. So, you most likely, will be in a huge cash bind. There are several ways around this obstacle:

Find a manufacturer that will give you favorable payment terms: My manufacturer agreed to payment terms of 90 days on the first few orders, so I didn’t have to pay them until 90 days after the order shipped. This allowed me to get paid by my customers before I had to pay the manufacturer.

If you can even get payment terms of 30 days that will be a huge benefit. At the very least you want a manufacturer that will let you pay at the time of shipping, instead of before manufacturing begins.

Focus on customers that will give you better payment terms. The majority of customers will not give you an order before you have merchandise in stock, and they almost never pay quickly. So you have to focus on customers that love your product enough to make an exception.

Purchase order financing and invoice factoring If you get an order from an established company you have two more financing options available: purchase order (PO) financing and invoice factoring. For these methods it’s the credit rating of the customer that matters and not yours.

PO financing provides you the money necessary to produce the order if your manufacturer requires upfront payment before production.

Invoice factoring is used after the order has been produced and shipped to the customer, so it allows you to get paid immediately instead of waiting more than 30 days for the customer to pay. Invoice factoring has a lower interest rate and is easier to obtain, because the lender’s risk is reduced since you already produced and shipped the order.

Andy Lau
CEO, Stratup (Rounded Photo)