Where to set terms for a brand new customer on a large order

We're talking brand new place and an order above $60,000.

Im thinking 50% down, the remainder net 10 or 15. Material alone is near 50k.

I want the job but I'm not getting stuck. If they don't like my terms and I don't get it then fine.

What would you tell them?

you may try 50/40/10
50 % rpo- put a time on it- say 10 days
40% delivery- net 30
10% approval

gives them some money to hold onto in the event you need to make any mods.... usually done in the event of dies, molds, or other tooling

Wow, that is some material to finished product ratio. I am a wimp, I wouldn't take that one myself. Good luck with it. I hope it works out well for you.

Dan

$50k in material on a $60k job?

Have them buy the material.

The markup for risk and fronting the money and material should put you close to 60k.. Do you plan on doing the machining for free?

If the material is $50k, I'd want $50k down. You can eat labor if you have to. You can't eat that material.

first of all, whats the credit like?

SMT said:

We're talking brand new place and an order above $60,000.

Im thinking 50% down, the remainder net 10 or 15. Material alone is near 50k.

I want the job but I'm not getting stuck. If they don't like my terms and I don't get it then fine.

What would you tell them?

Click to expand...

You must mean 50k for materials and running the job and 10k in your bank, I'd say 50% down 25% when the orders about 1/2 done and the other 25% no later than 10 working days from completion but before being removed from your site.

WILLEO6709 said:

you may try 50/40/10
50 % rpo- put a time on it- say 10 days
40% delivery- net 30
10% approval

gives them some money to hold onto in the event you need to make any mods.... usually done in the event of dies, molds, or other tooling

Click to expand...

RPO? I'll assume that means now.

So 50% now, 40% net 30 after parts ship, 10% on approval which happens when? In your mind I mean.

Also note this isn't a $60k job. *Above* $60k. Im trying to remain slightly general here.

IeliteENGINEER said:

You must mean 50k for materials and running the job and 10k in your bank, I'd say 50% down 25% when the orders about 1/2 done and the other 25% no later than 10 working days from completion but before being removed from your site.

Click to expand...

Interesting concept. So you'd be wanting the second 25% when the job is half done but before any parts had shipped?

SMT said:

Also note this isn't a $60k job. *Above* $60k. Im trying to remain slightly general here.

Click to expand...

Either way, all my customers know I mark up material... If its anything big, they buy it.. If the best price is from
somebody I work with/have an account with, then they will pay me as soon as the material shows up so I can pay them...

$50k out of MY pocket for a NEW customer.. F' that... For a small guy, that's a LOT of money and could break me really easy..

And if they buy the material, they have skin in the game...

I'm not saying this because I'm paranoid, or I don't trust my customers, they've never given me a reason not to... But when an invoice goes overdue,
it helps me sleep at night knowing I have stuff here that they've paid for... Castings, material, finished parts etc... I already know I'm not
going to get screwed, but on the rare occasion something goes over due, in the far back of the mind, its comforting knowing that I've got some leverage
if it should ever come down to it, and things would have to go horribly wrong for that to ever happen.

it's a tough call. If you try to play hard ass, they'll just go some place else. If you play Mr Softie, the'll screw you. I've gotten quite a few new customers lately, and I'm pretty lax about giving them terms. Not anymore. Theres nothing that gripes me more than a new account who pays late. We're setting up to take credit cards, and our new policy is, all new accounts are COD on a CC. MY bank will charge 3.2% and I get paid the next day. I figure if the scumbag goes belly up, 96.8% is a whole lot better than 0%.

rpo - receipt of purchase order the 10% final sometimes depends on the customer, one of mine likes net 60 from approval, which makes me keep in touch on any issues.

basically if you play your cards right you have enough time to not do a damn thing thing until they pay you 50%- and you CAN say that in terms- clock on the job starts when I get paid the initial invoice.

credit cards are great- but I don't give quick pay discount for credit card work. I pay between 3 and 4 % for corporate cards, I figure the 2% discount would be half of it and I'll eat the remaining 2%. Also - your credit card companies get snotty if you try to run a card for $40k or over......

in these cases failing to plan is planning to fail....

SMT said:

RPO? I'll assume that means now.

So 50% now, 40% net 30 after parts ship, 10% on approval which happens when? In your mind I mean.

Also note this isn't a $60k job. *Above* $60k. Im trying to remain slightly general here.

Click to expand...

Are you fucking kidding me?

Might as well walk down the street handing out $100 bills to everyone you see as you won't go broke nearly as fast as paying $50k up front in materials with taking only $30k to start and hope you collect the rest after delivery.

I want to know how many other shops this "customer" approached with a $60k job that needs $50k in materials. My guess they all told the customer to pound sand.

Materials usually are 50% max vs the total cost of the job.

Explain the "slightly general" part. $62k? $65k? 650k?

Being vague to us just gives you vague answers.

Our Standard terms are 50/25/25. So 50% down, 25% when ready to ship, Balance Net 30 after approval, not more than 45 days after shipment.

As others have said, any job that has a higher material/outside services ratio than what the shop takes in I will not touch. I either no quote, or raise the price to get the 50/50 balance.

As others said, let them supply the material.

Or, if its a long running job of many parts, split it into smaller less risky bits, first cheque clears, then the second batch material gets ordered and starts and so on. If its weird material that takes months to get we're back to letting them supply it.


If by "new" you mean they opened their door yesterday and aren't a company that's been around many years(well known to other shops...) be extra cautious. A few places did that around here, paid none of the vendors, sucked millions in tax payers money, then poof. You can't put a lean against anything cause they already owe everything to bigger fishes...

Oh to have a customer that buys into 50% up front.
I've gotten away with 30% on special build machines with a fair amount of arguing.
Perishable tools, not a chance.
If you need some custom endmills or some collet chucks for this job will you pay 50% with the PO? This up front payment should run downhill from you also.
Bob

Ain't no job that requires $50k in material, only worth $60k all in!
The risk of dealing with $50k worth of material means:
If you fuck up the first batch, there damn well better be enough left on the table after the job is complete, for you to break even after paying for the material twice.
What if the dumpster-divers grab half a pallet off your dock while you are eating lunch? Customer will not have an allowance for that I am sure.
WTF? I am stupid, and that shit is obvious.

Work with their buyer to convince them that due to the cost of the matériel they would save your markup and have MORE control over the quality of the material as they can have their engineer work directly with their supplier to get the best material for a better cost to them than yiu could before your markup...

That will get the risk down to your security and control so make sure you have good insurance.

Also request copies of material quotes so you can advise if good deal etc but also so you can get some to cover scrap paets.

New company? New product? New Engineers?

Huge(to you)initial order with alot of material and sweat into it...

Been down that road more then once. My first time came close to wiping us dry.


New Product for a longtime customer of mine. We had a hand in developing the product, they approved design, their customer placed a huge order with specific deadlines and penalties for lateness.
We asked for 50% down, balance 30 days after delivery. Our customer mortgaged their house and business building coming up with about 40% of the initial order. We agreed putting up the rest and went to town, ordered specialized castings, tons of material, worked 7 days for weeks building fixtures, tooling and then the actual parts. We were about 4 weeks out from first delivery when we started to assemble. Our customer was there for our fist completed unit, to which he took to his customer to show progress, quality etc. I get a call later that day...the customer rejected the unit. Some bigwig sat in on the meeting and condemned the design stating it did not meet a specific requirement and they would not accept. There was some talk about suing as they accepted the prototype and had a contract, but my customers lawyer basically said they had much better lawyers, proceedings could be drawn out for years it would be much better to just redesign. Sounds easy, but how? What if redesign cost more then we had to play with as we were already on a shoestring budget..I say we as my customer had nothing left...I had some money to play with but very close to a point I would not be able to recover if it went south.
Luckily, we sat down together on a Sunday morning and played with the design and finally came up with a very inexpensive modification that could be done to meet and exceed the requirement. His customer loved the design, added to the standing order and all was good in life again.

If we did not find that fix...my customer would have went out of business, lost his house and building, nothing to go after. I'd have my business, house but zero reserve in the bank account, a ton of scrap and bills for some of that scrap.

-What I took away...don't spend more then you can lose.

-Just cause your right and have a contract does not mean a customer can't crush you and your contract if they have better lawyers and more money to play with.

-If your customer closes up shop...what good is a promised payment. Don't spend more then you can afford to lose.

-New customers do not always know what they want. Their problems can become your problems very quickly. Make sure your covered and don't spend more then you can afford to lose.



Whats a good deal, how much is enough to put down...I do not know. But if deal went south...were would you wind up. Maybe smaller inital orders and roll profits over and over gettign that cash to flow in.

In the OPs scenario, I would specify and place the order for the stock, negotiate the price*, and then have the customer pay for it with CC (or whatever is acceptable to stock supplier.) That way, you guard against wrong stock choices that can screw up your production time cycle, but you don't have that expense right out of the gate. You miss your markup on stock, but you bypass 50k of risk, too. Now, your upfront money covers just your machining services, instead of 'some' of the stock price.

*Meaning, decide if the customer gets your usual stock discount off list, or if the supplier charges your customer list price, and applies your discount to future purchases, or whatever. Stay legal, of course...

I've tightened up credit terms on new customers over the past year or so -- pretty much CC only for them. I just tell them at the outset: Let's let banks be banks, and we'll do our specialty, and keep them separate. I use Square for CC transactions -- took all of 20 minutes to set up, and the 'occasional use' model works fine for my project mix. The purchasers actually prefer it, because it saves a ton of PO-related paperwork up and down their food chain.

Chip