How much debt between large corporations and manufacturing
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    Default How much debt between large corporations and manufacturing

    Many of my customers pay within two weeks and a couple within 45 days.

    In the past I was approached by a company that wanted to pay 90 - 120 days after delivery.

    How much debt is held between big corporations and manufacturing based on this 120 day cycle? It seems that it would be a constant debt, maybe new as in a different job, but it is never ending.

    How does manufacturing handle that debt especially with the race to bottom mentality?

    How is a manufacturing company able to swing that debt along with the high cost of machinery, tooling and materials.

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    Quote Originally Posted by drom68 View Post
    Many of my customers pay within two weeks and a couple within 45 days.

    In the past I was approached by a company that wanted to pay 90 - 120 days after delivery.

    How much debt is held between big corporations and manufacturing based on this 120 day cycle? It seems that it would be a constant debt, maybe new as in a different job, but it is never ending.

    How does manufacturing handle that debt especially with the race to bottom mentality?

    How is a manufacturing company able to swing that debt along with the high cost of machinery, tooling and materials.
    You have to get as big as the "big guys"

    A couple jobs ago I worked at a place like that, everything was net90 or they didn't work with you. The kicker was this was a mulit-billion dollar global company and everyone was typically falling over themselves trying to get a foot in the door. I expect that plays a role too. "Hey look at the carrot! Just one more hot job (at a loss for you of course) and we will use you exclusively for our xxxx tooling-parts etc..."

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    I don't think a new company, or a very small company (under 10 employees) could manage the debt. But it is the cost of business for working with some of the big guys.

    The debt held in accounts receivable is just a small part of the equation. At the last company I worked for, we did a lot of complicated castings for the big aerospace players. 9 month lead time on castings meant you had constant orders out. It wasn't uncommon to have 3-5 million in raw material or WIP in the shop at any given time. This was in a shop that only grossed 12 million.

    Creative accounting goes a long way.

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    If you have continuous business it works but you sort of become a bank lending money.
    If it flows steady you float the input vs output cash.
    This is an investment on your side for that flow.
    Money now is cheap, not like the older days. Line of credit percentage is not what it once was.
    The big hump is that AR cash and how to fund it and pay the employees, IRS, and due bills.
    I factor payment terms or expected time into price and offer discount for rapid pay.
    Smaller shops also get to float this with the IRS and State. Monthly or maybe more deposits. Get bigger and it is a every week payment.

    Once you "cover the nut" it just flows. That 30-60-120 is a problem as your money is spent and out there.
    I wonder what McMaster floats in this side?
    I think the biggest I've had to carry was around $400,000 and that pushed my credit line and all other cash resources hard.

    Want a bigger surprise? Mid and bigger companies take this cash flow and invest it in the market or others making money off of your float or loan.
    Bob

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    it's easy. Anyone who wants to pay in 90 days can just go to hell.

    Or, let them put it on a credit card. I get paid tomorrow, they can take the rest of time to pay for all I care.

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    Quote Originally Posted by CarbideBob View Post
    I wonder what McMaster floats in this side?
    McMaster doesn't play this game with their customers. I've worked at 2 major corporations now where McMaster has told them to pound sand. Sourcing told engineering not to order from McMaster. Engineers laughed.

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    Quote Originally Posted by Archer120x View Post
    McMaster doesn't play this game with their customers. I've worked at 2 major corporations now where McMaster has told them to pound sand. Sourcing told engineering not to order from McMaster. Engineers laughed.
    So buying from the big MC is COD or credit card, cash up front only?
    I thought they floated some AR cash and offered discount for quick pay.

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    Quote Originally Posted by CarbideBob View Post
    So buying from the big MC is COD or credit card, cash up front only?
    I thought they floated some AR cash and offered discount for quick pay.
    McMaster does do terms. They also offer a small discount for quick pay.

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    Quote Originally Posted by drom68 View Post
    M
    How is a manufacturing company able to swing that debt along with the high cost of machinery, tooling and materials.
    first of all, bake it into the price. The corporate track star in treasury basking in their brilliance doesn't realize we charge for this nonsense.

    btw a customer owing you money isn't debt (as in a liability), its an asset. You can borrow against it or sell it for cash. i.e. get a line of credit. banks will margin against your A/R, usually 75%, 50% on inventory, if its good receivables which it will be if its Giant Co Global Inc. Or sell the A/R - factoring.

    Finally, get terms from your suppliers. An increase your payables makes your cashflow go up - it offsets or counters the inrease in A/R which reduces cashflow

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    I meant that McMaster wont play the 120+ day BS.

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    Quote Originally Posted by Larry Dickman View Post
    it's easy. Anyone who wants to pay in 90 days can just go to hell.

    Or, let them put it on a credit card. I get paid tomorrow, they can take the rest of time to pay for all I care.
    I wish it was this easy. Been in business 6yrs and still have a hard time finding customers. No problem keeping them. I have to take what I can get. Whats awesome is when one particular customer claims net30. Agrees to net30. They have several over 90 days and one over 120 right now. Quite frankly pisses me off

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    Quote Originally Posted by Mcgyver View Post
    btw a customer owing you money isn't debt (as in a liability), its an asset. You can borrow against it or sell it for cash. i.e. get a line of credit. banks will margin against your A/R, usually 75%, 50% on inventory, if its good receivables which it will be if its Giant Co Global Inc. Or sell the A/R - factoring.
    That's great until it gets over 90 days and your bank no longer recognizes it as a receivable. Now you may be in default if you are maxed out on your credit limit. But in any case, you have to cover the 90+ invoice with new invoices just to get back to level.

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    Quote Originally Posted by pgmrmike View Post
    I wish it was this easy. Been in business 6yrs and still have a hard time finding customers. No problem keeping them. I have to take what I can get. Whats awesome is when one particular customer claims net30. Agrees to net30. They have several over 90 days and one over 120 right now. Quite frankly pisses me off
    There's a saying in the world of real estate, "the three most important things are location, location and location". I think that applies to machine shops too. Seattle is a good location for a shop. When I started in Seattle thirty some years ago there were half a dozen store-front shops within a 6 mile radius of me. They're all gone now for a variety of reasons, two of them converted to trendy eating spots keeping the industrial decor, value of land may be the biggest issue. IMO, we have a real shortage of smallish shops in Seattle, consequentially I don't believe customers can get away with the 90 day drag out of payments.

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    Quote Originally Posted by gbent View Post
    That's great until it gets over 90 days and your bank no longer recognizes it as a receivable. Now you may be in default if you are maxed out on your credit limit. But in any case, you have to cover the 90+ invoice with new invoices just to get back to level.
    I agree with your statement, doesn't mean its not viable financing, but of course you'll get less of your total margined when individual items get to 90 and no longer qualify. IF you can't finance it with debt anywhere, its not doable without financing with equity - you need deeper pockets. Inability to finance terms like that you'd think would hold some common sense weight in a negotiation with the customer.

    I hope this 90-120 isn't a new trend I've lots of big company customers and so far haven't been asked to 90-120. Personally I'd seek a less abusive relationship unless just so lucrative you can't say no. I have thought seen south American and Latin firms propose 365 and 500 day terms. Yea right. The later even came with a bank that finance the receivable pay you in 60 you were instructed to add the interest to the price. Global $20B firm. What exactly did that accomplish? In the other case we did the deal but got paid right away by selling to an agent who carried the receivable (like he's not cranking the price up)

    I find customers do not grind on price from an RFQ (they want your best price the first time. not gamesmanship) but they do impose their terms. i.e I quote $100/30 days and the order comes in for 100 /75 days. Grrrr. I should try quoting $103/75 days, $100/ 10 days, Customer's choice

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    Quote Originally Posted by gbent View Post
    That's great until it gets over 90 days and your bank no longer recognizes it as a receivable. Now you may be in default if you are maxed out on your credit limit. But in any case, you have to cover the 90+ invoice with new invoices just to get back to level.
    I always slowly crept up the shop rate I charged the slow payers. I had one clown who I constantly cut off when he got too much of a tab over 90 days. He ended up bringing his machining in house and stiffed me out of $7,000. With his mark up I figured he was making $250,000 a year off what I was selling him alone. His problem, money burned a hole in his pocket and he spent foolishly. He and his wife never kept a vehicle over a year. He was always buying boats then turning around and selling them. He was constantly paying to have his house remodeled. He was in debt up to his eye balls. I know in 10 years of doing business with the guy he paid an extra $7k many times over what I would have charged a good payer. I fortunately don't have any slow payers any more.

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    Fastest Priority Service goes to customers who pay the Fastest. I'd print that right on my business cards if I ever got some made again.

    The most demanding pita customers are almost always the worst at paying their bills.
    There's also the issue that in many areas you only have 30-60days to put a lean on a job if they don't pay, which is a serious problem in the construction industry as most have terms longer than the deadline to put a lean on it, so lots don't get paid in the end.

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    Quote Originally Posted by Mcgyver View Post
    first of all, bake it into the price. The corporate track star in treasury basking in their brilliance doesn't realize we charge for this nonsense.

    btw a customer owing you money isn't debt (as in a liability), its an asset. You can borrow against it or sell it for cash. i.e. get a line of credit. banks will margin against your A/R, usually 75%, 50% on inventory, if its good receivables which it will be if its Giant Co Global Inc. Or sell the A/R - factoring.

    Finally, get terms from your suppliers. An increase your payables makes your cashflow go up - it offsets or counters the inrease in A/R which reduces cashflow
    There are also some of these larger companies that base their terms on 90 day and work with financing companies to offer discounts for pay as quick as 10 days. I've taken advantage of such programs and built the cost into the price.

    It is a lousy set of circumstances as a general statement. It is simply the big guy taking advantage of the little guy because they can. It is a lot like the big OEMs that decide to take your historical 100-piece orders, tell you that they've adopted a "kanban" system and expect you to take the order at the 100-piece price with 25-piece releases when they need them.

    The need for the business causes us to find the best way to work with them. It can even be a competitive advantage for the stronger shops when smaller competitors aren't able to comply.

    Another thing that makes it bad is that most shops simply don't have the buying power to pass the terms along to our supply base. It forces us to get a LOC secured by A/R or find some other way.

    At the end of the day, the weight of the financing cycle is being held by the smallest link in the chain and it sucks.

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    Quote Originally Posted by jobshopblog.com View Post

    At the end of the day, the weight of the financing cycle is being held by the smallest link in the chain and it sucks.
    This is probably the most compelling statement.

    Shops are always at risk, customers don't see this. The bigger business, they don't really care.

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    Quote Originally Posted by drom68 View Post
    This is probably the most compelling statement.

    Shops are always at risk, customers don't see this. The bigger business, they don't really care.
    Back when I was playing Dualkit my second largest customer filed bankruptcy. Come to find out the now long deceased crook that owned the place had pulled this before with other businesses. He had great lawyers and was able to fleece the company while running up debts. At the time the guy was famous for his custom limousines and vehicles. He was even on television multiple times. The guy had a string of expensive homes and over the top vehicles and toys. What shocked me was they were out of business for a week, then up and running in the same location under a different name. They pretty much had no assets as their building and equipment was all leased, plus the mechanics, body men and general laborers all provided their own tools.

    So anyway after learning their unsecured debt to me was worthless, they place an order. I told them cashiers check, money order or cash. The purchasing agent says to fax him a credit application and he would provide all the new information. I said "no credit". He then rants on about how many cars they build a month, their standing in the industry, blah, blah, blah, and how companies are lining up to be their vendors. I still said "no credit." He then says who do I think I am holding them "hostage" as my kits are one of the last items added to the vehicle before they are delivered.

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    I did some thinking about this after reading the thread and really I am having a hard time right now differentiating.

    I have a local Tier 1 that I occasionally do work for. I don't do direct work with them because I am too small, and do too little work, it costs something like $7k for them to set up a vendor. No way I would do all the paperwork required. One of my tool suppliers will bring me jobs from them. I don't particularly care for this arrangement because it adds a middle man but it saves me a lot of headaches, and gets me paid in less than 30 days, while the Tier 1 can run anywhere from 45-120 depending on whatever magical sauce they are drinking.

    My terms for new customers are COD until they establish themselves. Needless to say... there aren't many

    What got me thinking about this though was the unwillingness to "finance" your customers. I am as guilty as anyone, I am unwilling to finance customers, period. I do not take terms from any of my suppliers. They get paid whenever I get the bill. Save 1, who repeatedly tells me to take the 30 days.

    However what got me thinking about it is a product I am currently developing. I looked at my spread sheet and I am about 3 months into the project, with over $12k wrapped up in materials, tooling, and labor. (Labor of course is unpaid... )

    Is it really any different?

    When the project is done, I will have a bunch of inventory on the shelf, but it really isn't that different.

    I suppose you could say the reason I started making products, was due to the lack of customers in the area who were willing to pay in a timely fashion....

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