A question that I keep getting is “Why are you doing inventory financing?” Sometimes this is phrased as “that seems to be a really boring industry to try to launch a start up in, what the hell dude?” Well, I can’t deny that it doesn’t sound very sexy, but it’s something I’m passionate about. Let me tell you why.
Before I drank the punch and really immersed myself in this start-up mentality and methodology, I was running a very old school merchandising company. We called ourselves CPG Merchandising, leaning on my family’s experience in sourcing and contacts in China, we had a pretty successful venture.
Our modus operandi (does this sound familiar?) was to take a product already being manufactured and change it somehow to make it unique. Sometimes we would do package deals, sometimes we would add a feature or change the product slightly. When we had a quote locked down with our factory, we would try to sell it to retailers here, with about a 30% margin added on.
This ended up being a very successful model for us, but increasing sales was only the beginning of our problems.
Problems with Cash Flow
Now my company had a very unique and extremely advantageous position in the market. This is relatively unheard of now, but we had great contacts and existing relationships. Our retailer was paying us Net15(everything is Net30 or Net60 now) upon receipt of bill of lading (BOL) and our factory only required a 30% deposit, the balance of which was due upon BOL delivery.
So if we received a $100k PO on October 1st, we would have had to put $30k deposit down with the factory on Oct 2nd. Giving about 30 days for production and 30 days for shipping we would then pay the balance ($70k) and then chase payment for about 15 days. If we got paid on time, we would collect about $135k for the goods.
So the way it worked out is that we were floating $30k for about 75 days, and $70k for about 15days. I approached banks, but they weren’t interested giving loans to a business my size. Factoring services offered to buy our accounts receivables at around a 10-12% discount, which would have demolished my margin and essentially run us into the ground.
So we scrambled and I essentially got a personal loan, which is how my business was able to operate and thrive. However, this seemed to be a major problem that was certainly slowing the growth of my company. I had to imagine that, with all the advantages we had, this was a problem for a lot of other businesses in a similar position.
So I slept on the problem… for about a year and a half, and when my sister completed her Kickstarter campaign something clicked for me. Why not create a marketplace where businesses that need capital, could negotiate with people who could provide it and allow both to grow in a mutually beneficial way?
So after a year of development, I present to you Kickfurther.com. I consider it a neat solution to a pretty noxious problem.