California businesses are in the wholesale mecca and trade port hub of the U.S. There are literally tons of products being imported into our regional ports in California to feed this insatiable wholesaler appetite for product to sell. There are many opportunities in this trade zone where dreams can be made, but there are also financing issues that can bring nightmares for the inexperienced or faint of heart as well. Financing inventory can be a dream or nightmare, but lucky for you…this article will explain unique a trade financing platform that can help, called, “The Supply Chain Plus Financing™ Program” which can be used in conjunction with AR financing to really propel a growing business.
Before we go in to the details of one of the most flexible and economical ways for a California wholesaler to finance their inventory, we need to build a case to describe the typical scenario that many wholesalers and importers face.
The typical wholesaler is forced into importing goods to reduce their costs and increase their margins to remain competitive. For even the most experienced business that imports goods, there are many issues before financing such as quality control, working with a foreign factory, monitoring progress of order, etc. There are numerous instances where foreign suppliers ship good containers for a period, and then suddenly send a bad container where quality control had failed. What is your recourse on a foreign corporation that you have already paid? Most have no solution, but there are answers.
The Supply Chain Plus Financing™ Program provides a wholesaler with an easy to use solution. The Supply Chain Plus program provides an infrastructure and safety net to support an importer’s supply chain and capital at the same time for more inventory to grow sales.
The Supply Chain Plus Financing has 5 basic parts that it adds to a company’s supply chain:
- Expert Financial Review of foreign factory’s credit;
- Quality Inspection support & reporting to strengthen process;
- Letter of Credit and mobilization to support production;
- Cash flow ( AR financing) support to provide better cash flow;
- Credit insurance on sales can guarantee payment when customers can’t pay.
Before the financing can begin, there has to be a qualified 3rd party review of your foreign factory for a number of reasons. Most obvious reason is that one wants to make sure that your factory is strong enough to supply your short to midterm growth needs. Many businesses have also been surprised that after this type of review that their factory is not the actual factory making their products (this is common in China). A fact that is not so obvious is that your factory needs to be strong credit wise in order to really work with a Letter of Credit financing program (more on why this is important later in this article).
The Supply Chain Plus Financing™ Program also as a unique service that integrates it’s financing into a company’s quality control program or even creates a quality control program for the wholesaler based on its experienced staff and Asian practice. Having a team to review the pre-production & mid production provides a much safer way to control quality because it detects issues with manufacturing before all the goods are made which is typically when most inspections by small companies occur. Of course, companies like Apple, Sony, etc. do not wait until goods are finished to inspect which is a statement in itself.
The Supply Chain Plus Financing™ Program’s main support for most companies comes in the form of financing inventory. Wholesalers are often hit with seasonal needs and large clients making inventory demands. How does a wholesaler meet the cash flow need when there are so many other working capital needs. They can use their Purchase Orders (POs) as collateral and then utilize AR financing. In this instance the Supply Chain Plus Financing™ Program provides a number of solutions. The Letter of Credit (LC) solution is the tool of choice for international financing of inventory because it provides the safety of product being made to specs and on time before payment is rendered. There are many other conditions that can be placed to further secure delivery of goods, but in order to make the letter of credit “clean” and financeable on the sellers’ side, one needs to stick with conventional parameters. If your foreign supplier is not financially strong then they will often not accept LCs. The main reason is that their bank cannot provide financing support. Smaller factories cannot buy their raw materials or pay for production if they elect to accept an LC in many instances, so like poker, you can easily call their bluff in how big their factory is by offering an LC for payment. In most cases, you should only working with factories that can accept LCs as it is a key “tell” to their strength and credit quality.
The last key to the financing puzzle is to be able to finance your sales once the goods are imported and delivered to your client(s). California wholesalers and others are often required to play the role of the bank with their customers that often require invoice terms. The ironic part of this situation is that the customers that require the invoice terms are often larger than most banks (i.e. Costco, Walmart, Target, etc.). AR financing in this instance is an absolute must and the Supply Chain Plus Financing ™ program also offers this as well. Accounts receivable financing allows a business to finance its own invoices which is also sometimes referred to as invoice factoring.
The last portion of the Supply Chain Plus Financing™ Program is about creating a financial safety net after the sale. The wholesalers are often smaller than their customers and one customer not being able to pay would undoubtedly cause pain. Therefore, the Supply Chain Plus program has a credit insurance program built in where companies can submit their invoices for a small fee to be guaranteed for payment. Too many large companies are getting terms and with the economy on a roller coaster, credit insurance for invoices is always a great financial option to have available with a single phone call.
So one might ask, “Who offers the Supply Chain Plus Financing™ Program?” Simple. 1st PMF Bancorp.
For more information, please click here.
