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  • #981996
    Pre-launch
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    Hi, looking for some info

    We are about to launch a business and have got very strong feedback from a company re: the potential of our products.

    We could potentially find ourselves with a very large order to fill and no capital to do it.

    It looks like there would be a 2 – 3 month gap between the order being placed and payment received.

    We are a brand new business, we are maxed out in terms of personal finance.
    What are our options?

    Thanks

    #1134119
    MyGreatIdea
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    I’d ask for a deposit on order which should cover your order with the supplier.

    Wendy :)

    #1134120
    procnetservices
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    Deposit is good. You could look to negotiate some favourable payment terms with your vendor(s). Are they prepared to put some skin in the transaction as far as supplying up front and giving you longer to pay i.e. 60 days?

    cheers

    Scott

    #1134121
    Pre-launch
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    Hi

    Thanks for your replies

    With a deposit on order, what kind of percentage is the norm?

    Trade credit is a possibility with our supplier, deposit would have to be negotiated I guess. Bit of a vague question but how should I be looking at juggling this?

    #1134122
    Healthy Personal Finances
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    Definetly a deposit. Put that in your terms before they sign up so they are well informed about it.
    You could ask for a 50% deposit as the order is over $XX.

    They don’t need to know that is not your normal practice.

    You don’t want to order all this stock and then not be able to sell it.

    If they are placing a large order then one would assume they have the money – so for them paying a deposit is probably not even a big deal.

    Cheers
    Stacey & Richard

    #1134123
    LucasArthur
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    Hi Pre-launch

    Most importantly, dont convey desperation.. What i mean is that remember, even though someone is paying you, that you are providing a product they want and that you do not need to do everything you THINK they want you to do!

    Be cool, calm and collected and discuss trading terms in advance so there is no unexpected surprises for either of you.. what if they really wanted to stretch the payment to 6 months, would you consider doing business with them? are you really in a position to finance your clients cash flow?

    Assess the practicalities… There are services you can procure like debtor finance etc, although they are quite costly and difficult to obtain..

    Good luck, sounds like an enviable position to be in…

    Would love to know if your product is ‘unique’..

    Cheers
    Jason

    Jason Ramage | Lucas Arthur Pty Ltd | E: [email protected]   P: 61 3 8324 0344    M: 61 412 244 888
    #1134124
    Pre-launch
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    Thanks for your advice

    Our product isn’t unique but we have a unique angle I guess. ;)

    Thanks again

    #1134125
    Anonymous
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    Hi Pre-launch,

    If you’re dealing with a chain of retailers (as your other thread suggests), unfortunately you may find they’re not at all amenable to giving you a deposit, and that they will try to drag out paying you for as long as possible. (It’s always worth asking, especially on the grounds that you’re in start-up mode, but in my experience they tend to drive a hard bargain).

    One option may be to do a pre-sell – i.e. take orders from them for stock to be delivered and invoiced on X date so that you have a firm commitment to them purchasing a certain amount of stock. With that paperwork in hand you may have some better luck going in search of some short-term financing.

    This would be a great topic to raise in your meeting with the state sales manager that you’re discussing in your other thread, I think.

    Again, all the best,
    Jayne

    #1134126
    Cash Flow is King
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    Pre-launch, post: 152713 wrote:
    Hi, looking for some info

    We are about to launch a business and have got very strong feedback from a company re: the potential of our products.

    We could potentially find ourselves with a very large order to fill and no capital to do it.

    It looks like there would be a 2 – 3 month gap between the order being placed and payment received.

    We are a brand new business, we are maxed out in terms of personal finance.
    What are our options?

    Thanks

    Hi Pre-Launch. Deposit up front is always good, but sometimes you can meet with some resistance from your customer.

    Another option is debtor financing. Once the sale is made and goods delivered to your customer, you can factor the invoice and get 80%-90% of the invoice amount straight away. The Factoring company then waits until the customer pays and then works out their charge, which gets deducted from the remainder. The balance is paid back to you. Options are out there around initial percentage, length of contract, or no minimum term at all.

    Cost is often the same or less than a discount for early payment or up front deposit.

    #1134127
    Cash Flow is King
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    SimplyReplica, post: 152877 wrote:
    Hi Pre-launch

    Most importantly, dont convey desperation.. What i mean is that remember, even though someone is paying you, that you are providing a product they want and that you do not need to do everything you THINK they want you to do!

    Be cool, calm and collected and discuss trading terms in advance so there is no unexpected surprises for either of you.. what if they really wanted to stretch the payment to 6 months, would you consider doing business with them? are you really in a position to finance your clients cash flow?

    Assess the practicalities… There are services you can procure like debtor finance etc, although they are quite costly and difficult to obtain..

    Good luck, sounds like an enviable position to be in…

    Would love to know if your product is ‘unique’..

    Cheers
    Jason

    Hi Jason, IMHO debtor finance is pretty cost effective when compared to settlement discounts and the like. It’s only when you compare it to lending secured by property that there is a gap. Banks usually start with limits of $500,000 upwards, but there is a host of non-bank providers who compete vigorously for business. I’m involved with The Interface Financial Group, who will buy single invoices with no minimum value or term, again IMHO one of the most flexible products in the market!

    #1134128
    Cooke Consulting
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    Ooooh and I was trying so hard to stay out of this thread…..I though to myself kept quiet unless someone mentions debtor financing.

    …and behold!

    Firstly to David, please don’t take what I am about to say and something “dirty” against debtor financing, in no way am I intending to cause offence to you, your business or anyone else in the Debtor Financing world.

    Ok now I got that out of the way :D

    Pre-Launch – I know you said in your original post that you were maxed out personally etc etc.

    In my opinion I would suggest that you still approach a small business banker, for a short term loan. On the basis that you can prove that there is sufficient “meat to the bones” in the proposed transaction (which sounds like there is) to satisfy the banks mentality of “Risk Vs Award” there is always a chance that they look upon this favourably.

    If you are going to consider debtor financing, please please please ensure that you have fully read & understood:

    a) How the financial transaction works between you and the Debtor Financier.

    b) You have read and fully understood how the “process” works.

    c) What happens “IF” the client doesn’t pay, what are the consequences.

    I’ve seen too many clients that have got themselves into trouble by not understanding what they were getting into and having to end up relying on Debtor Financing for a continuous line of credit.

    With that said, there is certainly a time and a place for Debtor Financing, and in-turn I’ve referred clients with established businesses to Debtor Financiers because it fell into line with an overall strategy to get them self sufficient.

    Here is a video for them (please note this is from the telegraph in the UK from 2011, so the overall market will be somewhat different than here is Australia i.e. we’ve not been through a double dip recession).

    I’ll close by saying that IFG have a very successful business model…….just make sure you can see the wood from the trees!

    All the best,

    #1134129
    Cash Flow is King
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    Cooke Consulting, post: 153409 wrote:
    Ooooh and I was trying so hard to stay out of this thread…..I though to myself kept quiet unless someone mentions debtor financing.

    …and behold!

    Firstly to David, please don’t take what I am about to say and something “dirty” against debtor financing, in no way am I intending to cause offence to you, your business or anyone else in the Debtor Financing world.

    Ok now I got that out of the way :D

    Pre-Launch – I know you said in your original post that you were maxed out personally etc etc.

    In my opinion I would suggest that you still approach a small business banker, for a short term loan. On the basis that you can prove that there is sufficient “meat to the bones” in the proposed transaction (which sounds like there is) to satisfy the banks mentality of “Risk Vs Award” there is always a chance that they look upon this favourably.

    If you are going to consider debtor financing, please please please ensure that you have fully read & understood:

    a) How the financial transaction works between you and the Debtor Financier.

    b) You have read and fully understood how the “process” works.

    c) What happens “IF” the client doesn’t pay, what are the consequences.

    I’ve seen too many clients that have got themselves into trouble by not understanding what they were getting into and having to end up relying on Debtor Financing for a continuous line of credit.

    With that said, there is certainly a time and a place for Debtor Financing, and in-turn I’ve referred clients with established businesses to Debtor Financiers because it fell into line with an overall strategy to get them self sufficient.

    Here is a video for them (please note this is from the telegraph in the UK from 2011, so the overall market will be somewhat different than here is Australia i.e. we’ve not been through a double dip recession).

    I’ll close by saying that IFG have a very successful business model…….just make sure you can see the wood from the trees!

    All the best,

    James, you’re spot on. Your points apply to ANY commercial finance transaction though, not just debtor finance!

    Pre-launch, your local banker is almost always a good place to start, but don’t be surprised if they ask about the equity in your home, not the prospects for your business venture. Or at least home equity first, business plan second.

    I guess it’s important to point out that debtor finance is simply getting early payment of an otherwise “good” book debt, just like offering a settlement discount or getting paid c.o.d.. It is not a loan based on the viability of your business model, or a debt collection tool for problem accounts. Quite the opposite!

    If the Debtor ends up not paying, you’ll usually be asked to give the Early Payment back after it is a couple of months overdue.

    Unsurprisingly I am a strong advocate of debtor finance, but just like buying a car, you should always look under the hood first.

    #1134130
    John Templeton
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    I have to strongly agree with the above 2 posts. I’ve got a mate who was contracting to a company that RELIED WHOLY on debtor finance for cash flow and, needless to say, it ended in tears. Long story short the company went insolvent and my mate is getting maybe 2 cents in the dollar of the thousands he’s owed. I’d be very very wary of relying on debtor finance unless you’re completely aware of all the terms and conditions. Maybe look to a business lender for a short term loan instead.

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