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Our revenue is about $1m there. We are paying for everything upfront, wait for the sea freight to arrive, clear the custom, etc. Amazon also pays once every two

Our revenue is about $1m there. We are paying for everything upfront, wait for the sea freight to arrive, clear the custom, etc. Amazon also pays once every two weeks + keeps about two weeks of proceeds on hold on a rolling basis. That together with a spike in sales can easily crush if there are no fat cash reserves.

LatteLazy 6y ago
Mind if I ask: how long between paying for goods and being able to send them to people? Does shipping take long? I'm sort of fascinated by these supply chains because by making things (say) a week quicker you get a week's worth of capital back. But if things slow down by a week suddenly you have to out a lot of capital back in. Its like a very high leverage position in finance would be...
- toasterlovin 6y ago
  Here's what our capital requirements look like (we manufacture in Asia and sell on Amazon): 35 days in transit from Asia to U.S. West Coast + 60 days of safety stock + average of 14 days from when we sell to customer to when Amazon disburses funds. But the factory extends 60 day payment terms, so we need to cover 35 days of cost of goods sold (@ 50% of revenue) + 14 days of revenue. Or ~31 days of sales. I would say that we are probably in the typical range for a company that sources from Asia. If you source domestically, then you probably only need 30-45 days of safety stock, depending on lead times, but you might not get 60 day terms from your supplier.
  - LatteLazy 6y ago
    Thanks!
- hippich 6y ago
  In our case it is longer then usual, as the assembly chain is quite long and we are very conservative with cash flow. Manufacturing on avg is 15-45 days in China in my experience. Sea freight - 2-3 weeks, and couple more weeks to get through customs (if there is no random check on your container) and receival by Amazon. During pandemic last step is there most unpredictable. Also these avg numbers apply to something more or less standard product factories already making a lot of (meaning a lot of other sellers also sell it). Any customization adds time.
  - LatteLazy 6y ago
    Thanks. I think running lean was considered a great idea, but it leaves companies very vulnerable to any interruption in supply or demand or cash flow. Glad to hear you are in a better position!
    - hippich 6y ago
      Frankly, with all the bailouts going on, I am not sure our conservative approach to growth was right. Not sure if cash flow conservatism is a virtue anymore. But that is totally a different discussion :)
toasterlovin 6y ago
> We are paying for everything upfront This is insane. You should have at least 60 day terms from oversees factories. Unless you're in some really weird industry where that's not the norm.
- hippich 6y ago
  We are working with many suppliers to arrange the final product. The positive here is that we have much better control and fewer points of failure (and competition). Downside - we are still quite small for each individual supplier.
  - toasterlovin 6y ago
    Have you tried to negotiate longer terms yet?
    - hippich 6y ago
      We did not. Amounts are insignificant for each individual supplier and negotiating, keeping track of, and be leveraged (delayed payment is just that - a bridge loan offered by a supplier) seems like a burden for now. Despite higher risk tolerance being encouraged by the economy today, we are quite cautious about using any kind of leverage. We do have lines of credits, revolving accounts, etc for tough times, but prefer to avoid using significant leverage unless we absolutely have to.
      - toasterlovin 6y ago
        FWIW, you don’t have to use payment terms as financial leverage. You can just use them as a way to give your balance sheet more capacity to absorb problems, should they arise. In my opinion, that’s a good thing. Also, your suppliers will be more committed to you and they’ll respect you more if they’re extending you terms. Anyway, if you want a playbook for negotiating terms, feel free to reach out via email (address is in my profile).
        6y ago

LatteLazy 6y ago

Mind if I ask: how long between paying for goods and being able to send them to people? Does shipping take long? I'm sort of fascinated by these supply chains because by making things (say) a week quicker you get a week's worth of capital back. But if things slow down by a week suddenly you have to out a lot of capital back in. Its like a very high leverage position in finance would be...

toasterlovin 6y ago
Here's what our capital requirements look like (we manufacture in Asia and sell on Amazon): 35 days in transit from Asia to U.S. West Coast + 60 days of safety stock + average of 14 days from when we sell to customer to when Amazon disburses funds. But the factory extends 60 day payment terms, so we need to cover 35 days of cost of goods sold (@ 50% of revenue) + 14 days of revenue. Or ~31 days of sales. I would say that we are probably in the typical range for a company that sources from Asia. If you source domestically, then you probably only need 30-45 days of safety stock, depending on lead times, but you might not get 60 day terms from your supplier.
- LatteLazy 6y ago
  Thanks!
hippich 6y ago
In our case it is longer then usual, as the assembly chain is quite long and we are very conservative with cash flow. Manufacturing on avg is 15-45 days in China in my experience. Sea freight - 2-3 weeks, and couple more weeks to get through customs (if there is no random check on your container) and receival by Amazon. During pandemic last step is there most unpredictable. Also these avg numbers apply to something more or less standard product factories already making a lot of (meaning a lot of other sellers also sell it). Any customization adds time.
- LatteLazy 6y ago
  Thanks. I think running lean was considered a great idea, but it leaves companies very vulnerable to any interruption in supply or demand or cash flow. Glad to hear you are in a better position!
  - hippich 6y ago
    Frankly, with all the bailouts going on, I am not sure our conservative approach to growth was right. Not sure if cash flow conservatism is a virtue anymore. But that is totally a different discussion :)

toasterlovin 6y ago

> We are paying for everything upfront This is insane. You should have at least 60 day terms from oversees factories. Unless you're in some really weird industry where that's not the norm.

hippich 6y ago
We are working with many suppliers to arrange the final product. The positive here is that we have much better control and fewer points of failure (and competition). Downside - we are still quite small for each individual supplier.
- toasterlovin 6y ago
  Have you tried to negotiate longer terms yet?
  - hippich 6y ago
    We did not. Amounts are insignificant for each individual supplier and negotiating, keeping track of, and be leveraged (delayed payment is just that - a bridge loan offered by a supplier) seems like a burden for now. Despite higher risk tolerance being encouraged by the economy today, we are quite cautious about using any kind of leverage. We do have lines of credits, revolving accounts, etc for tough times, but prefer to avoid using significant leverage unless we absolutely have to.
    - toasterlovin 6y ago
      FWIW, you don’t have to use payment terms as financial leverage. You can just use them as a way to give your balance sheet more capacity to absorb problems, should they arise. In my opinion, that’s a good thing. Also, your suppliers will be more committed to you and they’ll respect you more if they’re extending you terms. Anyway, if you want a playbook for negotiating terms, feel free to reach out via email (address is in my profile).
      - 6y ago