Funding from customers and suppliers
With customers you can ask for:
- Full or part payment with order
All three will ease cashflow and eliminate or significantly reduce the need for funding.
If this seems like something you couldn’t do then it can help to take a moment to work out the value to your customers of offering credit.
If you offer 60 days credit on say £3,000 the value to the customer is less than £40.
£3,000 x 8% x 60/365 = £39.45
This is less than one and a half percent of the total price, is this really the difference between someone choosing you over another provider?
If it is, then the customer could be a highly price conscious (and unlikely to be an ideal long-term client for you) or they may value the credit because they do not have the money to pay you!
The other way to get funding from customers is to ask them for support. Golf Clubs do this with debentures.
An example of an established business doing this is Hotel Chocolat. They raised money for expansion for their business from customers by offering a Chocolate bond.
Not only did they raise money, but they got extensive press coverage.
They offered bonds of £2,000 to £4,000 which gave the investor different packages of chocolate.
The process took six months, cost £50,000 in fees but they raised £3.7m.
This maybe much more than you need but can you use the principle?
Once again, we see the value of creativity in business. Remember, there are no rules.
As well as customers there may be suppliers who are able to help you.
This could be with very generous credit terms, stock on a sale or return basis or a cash investment; especially if you sign a long-term contract to buy from them.
Pubs do this with new tenants who want to spend money to refurbish and re-launch a pub. The tenant ends up buying stock at higher prices than what they can buy in the supermarket but they have the cash they need to launch.
That covers the basics of bank funding and getting support from customers and suppliers.
In the next post we will look personal sources of funding.