Avoiding Additional Financing through Seasonal Vendor Terms


This extremely seasonal domestic consumer products company typically shipped and invoiced 5 times more product during the spring than other seasons. Due to capacity limitations, manufacturing occurred beginning 6 months sooner than shipments. By the spring of each year, the lines of credit were strained and cash managed intensely. With a 40% growth rate, this line was soon exhausted resulting in a need to renegotiate with lenders additional financing for a 75 day time period.


-Analyzed sales terms and was unable to accelerate customer payments to receive cash sooner.
-Adding capacity was not an option due to long term financing constraints and 6 to 9 month lead time for equipment procurement and installation. Outsourcing was not an option due to molds and tooling also being constrained with both financing constraints and lead time ensuring no viable option for at 6 to 9 months.
-Large suppliers were approached to discuss the constraints on business growth due to seasonality and the need for short term peak financing on a yearly basis. By graphing with them the customer shipping and payment profile along with the consumption of financing due to the heavy inventory build (coincident with purchase of raw materials), we were able to request their participation in the joint financing of the inventory build strategy to ensure that customer demand would be satisfied.
-Seasonal terms were negotiated where the largest 3 vendors extended payable terms from 30 to 75 day accounts payable. In the off-season, accounts payable reduced to 15 day terms which was highly achievable as the business was flush with cash and the revolver paid down to zero.


The business was able to avoid the process and distraction of renegotiating with the banks providing the revolver. This cost avoidance was significant in that the revolver needed to grow by over $20 million to ensure no disruption of the business during the latter stages of the inventory build and shipping seasons. This facilitated an additional 14% growth in its first year.