Using your suppliers to help your funding gap

Anyone that understands working with multiple retailers appreciate that this channel gives you fantastic scale and distribution, but it immediately creates a funding issue for most companies.

So you have struggled to get your product developed on a shoestring, protected it in some way, honed your pitch and then hit the phones.

Any buyer in retail needs to maximise the amount of money they make from their asset. Each sq foot of space is measured to maximise revenue and profit. Most people forget how expensive it is to run a retail operation, lots of fixed costs and incredibly competitive.

So if you are a retailer, your cash flow is imperative. You have invested millions of pounds in infrastructure, land, people and marketing. Online retailers although slightly less capital intensive have very high customer acquisition costs and switching costs are virtually nil for the consumer.

So although traditional retail moans about online retailers “eating their lunch” it was pretty much the same for small high street retailers when the consumer switched to the convenience of supermarkets.

So even as an online retailer cash flow is a very important thing, you need to recycle your marketing dollars as quickly as possible to allow you to continue to grow.

That’s where your suppliers come in. In the food industry Tesco, Sainsbury’s and Asda have taught manufacturers that in return for volume (which drives efficiency in a manufacturing business) you need to offer good terms. In small retailers, pro forma or 30 days credit is the norm – switching to multiples 45, 60 and 75 days seem more likely.

And that’s just the start, normally paying for returns, complaints, stocking or listing fees, early payment discounts all drive extra margin and cash flow out of the manufacturer.

So online retail has a great advantage, they can get close to similar terms (perhaps 45 days) and let the supplier avoid all the other “fines” to help improve their margin.

All you need to do is liquidate all the stock you buy in less than 45 days – and life will be good!

It’s that easy, but do that and your supplier will be pleasantly surprised by being paid and also getting another order

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