If you’re a wholesaler or manufacturer, landing a deal supplying a major retailer can potentially mean your business is reaching a new level. However, if not properly prepared for, this opportunity it can break your business. The often dramatic increase in demand for your products or services can have a disastrous impact on business cash flow if not properly prepared for and managed. Here are a few things that business owners should know about when preparing for a large-scale business deal and what they can expect along the way.
Big customers come with long payment terms
Ok, so this is somewhat of a generalisation, but typically, larger distributors and major retailers will have longer payment terms than you may be used to dealing with. Payment terms can have a dramatic impact on your business cash flow, and longer payment terms means needing tighter control over cash flow. Potentially it also means you can’t rely on an invoice being paid to fund the next production run.
Understand the costs involved
When a large distributor agrees to display your products, it usually means that other products are being removed to make room for your product. Naturally there is a level of risk involved in removing a product that is currently making money for the distributor or retailer, so in an attempt to offload some of this risk, there can be new, onerous fees and overheads attached to this opportunity, fees which you’ve haven’t previously experienced. On top of this, if your product generates fewer sales than its’ predecessor, you can expect to also fork out a compensation fee for this negative result.
Your job isn’t over once you’re in
Your job isn’t over once a large retailer agrees to stock your product. They will expect you to help drive customers towards their stores, and to your product. If your product is consistently being left on the shelves, you can expect that they’ll stop stocking it, at which point you could be left with a surplus of excess stock that you can’t move. In short, you can’t rely on simply being in supermarkets to grow both your brand and sales volumes.
Enter survival mode
Since only 1% of new products launched in the market survive for longer than a year, it’s time to switch gears and enter survival mode. Your goal is to become the brand leader in your product category and in order to outlive the volatility of the market. This will cost you investment in time, money and resources. It’s a harsh reality that every FMCG business owner needs to be aware of the ongoing investment before deciding to play with the big kids.
Ready your war chest
You need to have the funds to not only supply the initial order, but to then survive between its delivery and the first pay cheque. This means not only the initial capital required for orders, but for all of the day to day costs required for potentially the first 90 days following delivery. Most businesses getting this opportunity probably don’t have that kind of cash stockpiled. This is why having your finance needs sorted to support ongoing production or trade is so important. There are numerous funding options available to you, and it’s important that you find the one that best suits your specific situation.
Having sufficient cash flow will be the difference between your business living and dying, whether that be through funding or otherwise. There are a number of standard financing types, but there are also newer alternatives to these, some offering greater flexibility to enable business growth.
A combination of trade and invoice finance can be extremely flexible, allowing you to cover the cost of manufacturing, then helping to bridge the gap between delivery and payment.
Using Timelio, it works in the following way:
- You get an order to supply a large distributor. It will require a substantial amount of working capital to fill production, more than your cash flow can comfortably accommodate.
- Your distributor issues you with a purchase order, confirming the expected shipment and allowing you to start production.
- You submit the purchase order to Timelio, and, once approved, the portion you require to cover production is funded by our network of investors.
- The money is transferred to you within 24 hours, and you are able to fund production and deliver the goods, at which point you are able to invoice the distributor.
- At this point you are able to, if you require further funding, submit your invoice to Timelio to have the remaining balance funded in the same way, albeit at a lower cost of funding as the goods have now been delivered.
- Your customer then pays the invoice as per the terms, settling the outstanding amount.
There are a number of reasons to fund the invoice as well as the purchase order, instead of waiting for the distributor to pay. This injection of working capital can help you open up new growth opportunities with other distributors, support your product sales with advertising and marketing, pay your employees, or settle other everyday business expenses and even pay your suppliers early to take advantage of any early-payment discounts that may be available.
Whether you operate on an international or local scale, Timelio’s flexible options will ensure you have all of your bases covered when you start playing in the major leagues. If you’d like to know more about how trade or invoice financing can help when you start supplying into major distributors, get in touch with our Growth Manager David Webster at firstname.lastname@example.org, or give him a call at 1300 38 63 63.