Deposits for PO's

alexf · May 7, 2011

I'm wondering how some of you guys handle this?
I have been working and manufacturing for a client for the past few years and the relationship has always been very good. As the orders started to get bigger I was not able to float the cash outlay so asked for 50% up front which worked out okay.
Now they are making noise about going back to 30 days payment after delivery of goods. On a 20-30k order I'm not so worried but this is a lot more than that so I'm looking for ideas on how this is usually done.
Thanks.

WILLEO6709 · May 8, 2011

I don't think there is a "normal". One way you can do it is figure out how much the loan for the job will cost you in interest, time of setup at the bank, etc. Take that number and quadruple it. Add the quadrupled number into the job. Allow them a discount of half of the quadrupled number if they pay in 10 days after job completion.

doug6949 · May 8, 2011

alexf said:
I'm wondering how some of you guys handle this?
I have been working and manufacturing for a client for the past few years and the relationship has always been very good. As the orders started to get bigger I was not able to float the cash outlay so asked for 50% up front which worked out okay.
Now they are making noise about going back to 30 days payment after delivery of goods. On a 20-30k order I'm not so worried but this is a lot more than that so I'm looking for ideas on how this is usually done.
Thanks.

Nearly all of us bill work on net 30 and hope to get paid within 90. The fact that your client has been paying part up front tells me they were willing to help out a small guy in exchange for better pricing.

Now they figure either you are financially stable enough to accept normal payment methods, or they are having their own cash flow problems and want to push some of the burden back to you.

Or..... the client is about to go bankrupt and is deliberately running up debts so the principals can fill their pockets before handing the keys over to a judge. Your client may be stable - you didn't say - but keep in mind this is standard practice these days.

Try explaining to the customer that you are unable to carry the financial burden of such a large order. If they are a good client they should understand.

Doug

JB @ C and L Machine · May 8, 2011

I can tell you from dealing with large global customers that we would never be fronted for materials. We were awarded a 6 figure job and asked for some money up front and it was basically take net 45 or don't take the PO. This is were you need a line of credit to get you over those cash flow humps. We have never asked for money up front (with this customer) again. It makes you look small time.

Jay

MK Proto · May 8, 2011

I deal with each customer differently,but if needed quote the job with some NRE money in it to cover yourself. Dont be someones bank unless you can afford it. I also offer a prepay discount that is rather significant. I have only had one customer go over 30 days, and they are COD but keep coming back.

Jeff_M_PA · May 8, 2011

One thing to consider, if you want to cut the time you have to float the cost of the order, is invoice factoring. You can basically sell your account receivable to a factoring company at a discount the day you ship the order and write the invoice. They will have to approve your customers for credit in advance, but they are (naturally) quite good at this and will decline on any customers they don't consider credit-worthy. I am not in the machining business; we manufacture raw materials, and instead of this method we have a line of credit, but a lot of our vendors use this method. Seems to work quite well. It shifts the credit risk that you would ordinarily carry on to a company that does that for a living, so they are good at evaluating customers.

Gary E · May 8, 2011

JB @ C and L Machine said:
I can tell you from dealing with large global customers that we would never be fronted for materials. We were awarded a 6 figure job and asked for some money up front and it was basically take net 45 or don't take the PO. This is were you need a line of credit to get you over those cash flow humps. We have never asked for money up front (with this customer) again. It makes you look small time.

Jay

Jay
Sooooooo many of these guys are small time, and wil never be anything other than working in their basement by themselves... It's what has hurt this part of the economy for longer than I can remember, 40 -50 yrs...

These guys are taken advantage of by big industry because industry knows the situation and also knows they cant go elsewhere to get work... they know these guys are machinists, mechanics, tradesmen... what they are not and most likely never will be are savy biz people.

99% of these small so called shops, really one guy is a basement types would be much better off getting a real job at a legit shop.

There were Progress Payments on some Gov orders, but they had to be over $100,000 as I remember. And even then, the inspectors that looked at what you had done, made sure you had 30% of the work done, before 30% of the contract price was sent. You never got any front money.

Gary E · May 8, 2011

Jeff_M_PA said:
One thing to consider, if you want to cut the time you have to float the cost of the order, is invoice factoring. You can basically sell your account receivable to a factoring company at a discount the day you ship the order and write the invoice. They will have to approve your customers for credit in advance, but they are (naturally) quite good at this and will decline on any customers they don't consider credit-worthy. I am not in the machining business; we manufacture raw materials, and instead of this method we have a line of credit, but a lot of our vendors use this method. Seems to work quite well. It shifts the credit risk that you would ordinarily carry on to a company that does that for a living, so they are good at evaluating customers.

Just try FACTORING a little invoice sometime... you'l be told that your to small... the invoice is not big enough, and that your customer has a louzzy payment record so the discount the factor will take is huge. 20% maybe moore.

bjorn toulouse · May 8, 2011

Gary E said:
99% of these small so called shops, really one guy is a basement types would be much better off getting a real job at a legit shop.

You may want to consider that some of us "basement types" are working this way specifically to avoid working for pompous pedants like yourself.

Just sayin'.

Rex

Gary E · May 8, 2011

bjorn toulouse said:
You may want to consider that some of us "basement types" are working this way specifically to avoid working for pompous pedants like yourself.

Just sayin'.

Rex

Well... then I spose you know your place.... get back in the basement, that job is late,

dkmc · May 8, 2011

JB @ C and L Machine said:
I can tell you from dealing with large global customers that we would never be fronted for materials. We were awarded a 6 figure job and asked for some money up front and it was basically take net 45 or don't take the PO. This is were you need a line of credit to get you over those cash flow humps. We have never asked for money up front (with this customer) again. It makes you look small time.

Jay

THIS is exactly what's wrong with the damn job shop industry.
It's time to change this practice.

RJT · May 8, 2011

Nothing wrong with getting a down payment. If they won't, quote in a finance charge that will cover all your expenses for borrowing money. Lot's of times that will change their mind if they see it in black and white. Don't be an interest free bank for your customer. If they need you, they will work with you if they can.

jbmachine · May 8, 2011

Every quote I issue has a material and or tooling deposit (and sometimes hard ware , assembly cost, or sub out costs to a service provider) requirement
I rarely get the " so and so does not do that " well if so and so was great you would not be getting a second quote and everybody is looking to save money and I understand that. So if the client accepts the quote then materials and such are taken care of - one thing nice is if their is a delay your venders are not knocking on the door and when the job is paid for you have more of a "pay day" for your hard work.

alexf · May 8, 2011

RJT said:
Nothing wrong with getting a down payment. If they won't, quote in a finance charge that will cover all your expenses for borrowing money. Lot's of times that will change their mind if they see it in black and white. Don't be an interest free bank for your customer. If they need you, they will work with you if they can.

That's what I was thinking. I have recently been able to drop my price considerably even though steel prices have been climbing a lot lately.I don't feel like being an interest free bank and taking all the risk.
The company is good and I started with them when they were small and helped them with product design. It seems that if they want the product from me and my track record has been flawless it seems a small price to pay to ask for a deposit.It has to be paid anyway right?

Cheers all for your responses.

JB @ C and L Machine · May 8, 2011

RJT said:
Nothing wrong with getting a down payment. If they won't, quote in a finance charge that will cover all your expenses for borrowing money. Lot's of times that will change their mind if they see it in black and white. Don't be an interest free bank for your customer. If they need you, they will work with you if they can.

I never said to do it interest free. I would never add a fiance charge to the quote. It should be included in your shop rate as doing business. I have a customer who can purchase the same casting from the same foundry I do, but its not cost effective to write two PO's. I buy the part and add 20% Its just business

dkmc said:
THIS is exactly what's wrong with the damn job shop industry.
It's time to change this practice.

Please elaborate

Pattnmaker · May 8, 2011

I know at least one of the foundries I make patterns for requires the pattern be paid for up front, and they are not a small outfit.

JB @ C and L Machine · May 8, 2011

Pattnmaker said:
I know at least one of the foundries I make patterns for requires the pattern be paid for up front, and they are not a small outfit.

apples and oranges.......I would have somebody pay for the pattern up front too. You wouldn't walk away after it was paid for :crazy:

dstryr · May 8, 2011

JB @ C and L Machine said:
I can tell you from dealing with large global customers that we would never be fronted for materials. We were awarded a 6 figure job and asked for some money up front and it was basically take net 45 or don't take the PO. This is were you need a line of credit to get you over those cash flow humps. We have never asked for money up front (with this customer) again. It makes you look small time.

Jay

I'd rather look small time then get burned. Ask me how I know about that one.
We used to run 3 shifts on 10 machines so we weren't a basement type shop but not a huge shop either. Our larger customers have always understood that and are willing to make deposits now due to our reputation of sending them quality work on every job. If the customer won't make a deposit then I'd rather pass on the job then take the risk again. Lesson was learned here.

JB @ C and L Machine · May 8, 2011

dstryr said:
I'd rather look small time then get burned. Ask me how I know about that one.
We used to run 3 shifts on 10 machines so we weren't a basement type shop but not a huge shop either. Our larger customers have always understood that and are willing to make deposits now due to our reputation of sending them quality work on every job. If the customer won't make a deposit then I'd rather pass on the job then take the risk again. Lesson was learned here.

I have no idea who you guys are doing business with...but the least of your problems should be is collecting your money!!! :cheers:

dstryr · May 8, 2011

JB @ C and L Machine said:
I have no idea who you guys are doing business with...but the least of your problems should be is collecting your money!!!

The worst part is the deburring staff that got promoted to incoming inspection. :/. I can't tell you how many times we get Manufacturing Issue emails that turn out to be user error in their incoming inspection staff....

Deposits for PO's

Plastic

Diamond

Hot Rolled

Stainless

Hot Rolled

Cast Iron

Diamond

Diamond

Titanium

Diamond

Diamond

Titanium

Plastic

Plastic

Stainless

Stainless

Stainless

Diamond

Stainless

Diamond

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