Business question: Buying a large quantity of product from a distributor/wholesaler

[steppinthrax]

I'm not sure if anybody has information about this sort of thing.

I'm looking at a state contract to bid on where the agency wants around 8,000 USB flash drives of a specific make/model. It's a pretty simple contract, get the drives and mail/transport them to around 15 locations throughout the state. Once delivery is made then they cut payment (this is all assuming you are awarded the contract).

Issue I'm having. I've contacted a few wholesalers and got the price down to around $12.00 a unit so not including freight that comes to around $96,000 that needs to be paid to the distributor up front.

Big issue I don't have that kind of money lying around. If I'm awarded the contract I will realistically need a loan for a few weeks to pay for the units and then deliver them. Once I receive the money from the gov I will pay the loan off.

Question is how is this normally handled? Would you take out a business loan for this type of thing? I was reading this is considered a "inventory loan", also the loan amount is pretty high, who would give a small business this kind of money? Could the contract award be used as justification for the loan?

 

[tcsenter]

If you must ask, you aren't yet informed enough to be committing yourself to legally binding shit. Learn how this works first, various ways of business financing and contractual commerce, THEN try your hand at legally binding stuff. Cart before horse.

 

[steppinthrax]

If you must ask, you aren't yet informed enough to be committing yourself to legally binding shit. Learn how this works first, various ways of business financing and contractual commerce, THEN try your hand at legally binding stuff. Cart before horse.

So pretty much you will need to get a business loan. I was also under the impression that the distributor can do some sort of financing, I didn't see this....

 

[deadlyapp]

If you're fast enough you could always have them invoice you and make sure you have a net 60 day payment term which might give you enough time to be paid by your client first. More than likely though with this sort of value you're going to have the vendor do a credit check which will obviously show you're not capable of paying.

 

[ponyo]

You don't even have $96k cash? Don't you have like 3 jobs? For that small amount, I would charge it to credit card.

 

[BoberFett]

I'm not sure if anybody has information about this sort of thing.

I'm looking at a state contract to bid on where the agency wants around 8,000 USB flash drives of a specific make/model. It's a pretty simple contract, get the drives and mail/transport them to around 15 locations throughout the state. Once delivery is made then they cut payment (this is all assuming you are awarded the contract).

Issue I'm having. I've contacted a few wholesalers and got the price down to around $12.00 a unit so not including freight that comes to around $96,000 that needs to be paid to the distributor up front.

Big issue I don't have that kind of money lying around. If I'm awarded the contract I will realistically need a loan for a few weeks to pay for the units and then deliver them. Once I receive the money from the gov I will pay the loan off.

Question is how is this normally handled? Would you take out a business loan for this type of thing? I was reading this is considered a "inventory loan", also the loan amount is pretty high, who would give a small business this kind of money? Could the contract award be used as justification for the loan?

A bank might take into account a contract with a reliable payor. Are you talking about the state of Illinois? That might be a hard sell...

So pretty much you will need to get a business loan. I was also under the impression that the distributor can do some sort of financing, I didn't see this....

If you can work out terms with the distributor, sure, go for it. That's going to be a contract independent of your contract with your client however, make sure you know what you're doing and that you're going to get paid on time by your client.

As someone else said however, if you don't understand this process, you may want to consider that you're in over your head on this, and should consult with an experienced partner.

 

[DaWhim]

i bet i can swipe that with my amex.

whoppie, with 40k outstanding, i put in a 50k purchase to see if they would approve me. it did.

you need to have money to make money, it is called capitalism and you are simply lacking the capital. you can try to work something out with lenders for a business loan or the distributor for financing it. you will be some credit and referrals.

 

[Nograts]

C.O.D. the USBs then fake your death/mug truck boy. Profits.

 

[kranky]

I would look very hard at the other terms and conditions in the contract spec. I would bet there are a crapton of other requirements beyond simply delivering the drives.

And you'll get paid probably 3 months after you finish delivery.

Is there no requirement that you have a performance bond for the contract?

 

[Fern]

-snip-
Could the contract award be used as justification for the loan?

It's likely it can. If the purchaser is solid enough, and a state should be, a bank may loan money for the contract.

Fern

 

[pete6032]

You should try contacting the nearest Small Business Development Center if you have one close by. The SBA often help small business with government procurement like this. If you don't have an SBDC nearby you can find contact information on SBA.gov

 

[TheGardener]

Be careful about what state you are doing business with before you commit to any loans. Some states could make you wait a long time to get paid. Illinois for example is making their big lottery winners wait. Instead of cash, they got an IOU.

 

[Capt Caveman]

You don't even have $96k cash? Don't you have like 3 jobs? For that small amount, I would charge it to credit card.

Would have thought the OP would have at least $100k liquid, stashed for emergencies.

 

[steppinthrax]

Thanks for all the responses from everyone.

I had been doing some research upon posting this question. I've been able to answer several of the questions (some asked here) as well as my own.

1st, In terms of the money, I do have that kind of money spread among various accounts, but I personally wouldn't want to use it.

2nd, yep I did get further information regarding the payment terms. They are looking at 4-weeks after complete delivery. Which is kind of long, but it is what it is.

3rd, yeah most distributors I called had what's called a "line of credit". I didn't really realize it, but they would run a credit app and pretty much not want to do some kind of payment terms because of the size and quantity of product.

4th, the SBA doesn't help shit. First, they will only allow you into the Business development program if you're business has been around for around 2 years. Second, when I tried to get a waiver they told me that you need to win more contracts, then we might consider you.

5th, there is no performance bondage req for this contract, only General Comm Liability of 2/1M and Fidelity

6th, I've read the contract numerous times.

The profit I can make from this deal would be awesome, even if I found way to finance the money. I'm getting the drives for roughly 12.10, if I sell it to the gov for roughly 15 or so I'm looking to make around 25K within a few weeks. Think of it this way, even if I pay around 2 - 3K in finance charges as well as a few hundred dollars here and there for deliver I"m still going to be sitting pretty.

This is all assuming the gov accepts my offer. I have a good chance, since I"m small business, some companies are going to put it even higher than 15 each.

I'll keep you guys updated.

 

[DrPizza]

This is all assuming the gov accepts my offer. I have a good chance, since I"m small business, some companies are going to put it even higher than 15 each.

I'll keep you guys updated.

It seems naive to me, but you think vendors of this product are completely oblivious of this contract? The only way they'd turn down that much easy money would be if it wasn't worth it for them. They're making a profit selling you that many at wholesale - they make, according to you, a shit ton more profit by putting in a bid.

I could be wrong - maybe there are a lot of people who do make money doing this.

 

[highland145]

Hey, I can't believe you didn't PM me for a loan.


:sneaky:


Yeah the SBA/SBDC was pretty damn useless when I was trying to get $$ for another office.

 

[steppinthrax]

It seems naive to me, but you think vendors of this product are completely oblivious of this contract? The only way they'd turn down that much easy money would be if it wasn't worth it for them. They're making a profit selling you that many at wholesale - they make, according to you, a shit ton more profit by putting in a bid.

I could be wrong - maybe there are a lot of people who do make money doing this.

I thought about this...

I believe it may have to do with payment and terms. Possibly the gov doesn't can't pay the vendors on their demands. Also the drives have to be delivered to several locations throughout the state. You will always need a go-between for that. Also the issue with returns. I think also the gov has a req to go through purchasing about these things. Also the gov may have a legal requirement to obtain bids for these type of things. Yeah I get it, it would make sense just for the gov to work directly with the vendor, but if that were the case you would never really have these contracts.

 

[purbeast0]

working in the government space, i can tell you that they 100% will go with the lowest bidder. doesn't matter what the quality of work will be, if it's the cheapest, they will go for it. and in the long run it will screw them over. and then they will repeat the same thing next time.

 

[kranky]

Don't believe the statement you'll get paid in 4 weeks. Yesterday I was on a call with a government customer who rejected our invoice because "their" computer system calculated a TWO CENT difference in the amount due. A bunch of items with unit prices going out three decimal places were billed, and apparently at some point there was a tiny difference in how our system and their system does rounding. Probably because we don't do any rounding until the total, and they do it on multiple line items, subtotals, etc.

We said subtract the two cents and we'll call it even. They said no, you send us an invoice with the correct total and we'll start processing it.

And since today is the last day of the month, and we can't get them a new invoice instantly, we'll end up waiting another month to get paid.

working in the government space, i can tell you that they 100% will go with the lowest bidder. doesn't matter what the quality of work will be, if it's the cheapest, they will go for it. and in the long run it will screw them over. and then they will repeat the same thing next time.

Sometimes they do things differently - they pay consultants a lot of money to re-write specifications to address the areas where they got screwed last time, which will only end up costing them more on the next project because the requirements are more stringent. Taking the logical step of not using the same company that screwed them last time is apparently not an option.

In the type of work I used to do, one part of the project that used to cost about 3% of the total is now around 15% because of more intense requirements. It doesn't improve the end product, it doesn't make anything faster, all it does is add more paperwork and more cost. But that 5x increase in work effort is almost all because of making vendors do more because somebody tried to cut corners on an earlier job and got caught.

 

[drnickriviera]

I agree with kranky. My wife works for a state institution and many of their vendors get pissed at the long wait times for POs to be paid. Usually 2-3 months

 

[Imp]

working in the government space, i can tell you that they 100% will go with the lowest bidder. doesn't matter what the quality of work will be, if it's the cheapest, they will go for it. and in the long run it will screw them over. and then they will repeat the same thing next time.

Heard it's somewhat related to being sued. Go for lowest bidder = simple test of which bidder won, nothing to argue over, one number less than all others. Factor in harder to value things like a reliable vendor, good history, or more qualified people = enjoy the lawsuits from the losing bidders...

 

[tcsenter]

I would get some experience in GSA contracting (working for or with someone else) before you try to do something on your own at this level. There are companies already out there who have the established credit lines, import connections or experience, and some cash on hand who can get this done cheaper than you could.

 

[kranky]

Heard it's somewhat related to being sued. Go for lowest bidder = simple test of which bidder won, nothing to argue over, one number less than all others. Factor in harder to value things like a reliable vendor, good history, or more qualified people = enjoy the lawsuits from the losing bidders...

There's truth to that yet I've also seen RFPs that are structured in such a way that it would be nearly impossible for anyone to be the lowest bidder, except for the one company who they want to win. They need to make sure there are multiple bidders so they can't put in requirements that eliminate all but one company, but they can (and do) things like this:

- Must pre-qualify to be a bidder by documenting a certain type of experience (to narrow it down to a small handful of potential bidders)
- The requirements specify performance characteristics for certain items that will be used, and only one company (a company who will be bidding) makes the things that meets those characteristics. The other companies must either buy those things from the maker and of course pay retail (a big disadvantage vs. the maker) or they can spend money trying to develop equivalent things (again, a disadvantage). So the companies who are not the maker of the things will have a difficult time matching the price that the maker wants.