Maybe the real lesson of the whole thread is to require customers to pay in advance with a non-reversible wire transfer, or at least via an escrow service contingent on delivering the goods. Or alternatively, somehow buy insurance against the customer failing to pay.
There are an enormous number of marketplace norms which prevent being able to make demands on a customer like that. If you're the only vendor trying to protect your downside like that, then you look like a bad vendor, and it can affect your ability to close the deal at all. Especially in enterprise/B2B markets there's an amount of ceremony and playing of the game required, not because it's actually good for any of the parties involved, but because it's just the thing everybody does, so you have to do it too.
For example, we sell into markets like automotive, aerospace, and medical. Being a startup we have basically zero leverage in how to go about conducting business with large well entrenched enterprises with business development dynamics that were calcified decades ago. Part of managing my business is accepting and working with the risk profile of having to keep the company solvent long enough to actually engage these customers in the ways they're able to be engaged. I'm not going to be in a position to make demands that they conduct business significantly differently with us relative to their hundreds of other vendors regardless of if it would ultimately benefit both of us to do so. There's an amount of inertia in any status quo that needs to be overcome, and the problem with that is that the party with the most motivation to displace that inertia is also the one with the least power to do so. That reality gets baked into our capitalization and operations strategy.
I'd love to be able to demand that automotive OEMs actually cover the cost of engaging in a PoC with them which isn't going to have any real payoff for months or years, but every single other supplier they have eats that cost just like we do, and betting my company on the incredibly low probability that I'm going to displace the pandering that they expect from their supply-chain all by ourselves would be crazy.
> There are an enormous number of marketplace norms which prevent being able to make demands on a customer like that
There's also the reality that every business is on a 30, 60 or 90 day phase lag from delivery to getting paid, and so they have no choice but to enforce those rules up the supply chain. If you don't you need piles of cash upfront months before you generate any revenue, at scale that is really tough to manage and there's a very real cost to money.
The simplest example of this I can offer is that if you have to borrow ten million dollars to pay all your suppliers upfront and this money cost you 1% per month (making the numbers simple for the sake of an example), you are going to incur a 5% cost of money if you have to wait five months to get paid (again, keeping numbers simple).
I have a friend in the production business who made commercials for a major animation studio. He told me it typically took them about six months to collect. They would invest massive amounts of money on equipment and personnel to shoot, edit and deliver a commercial and their payment would not come for six months after delivering the end product. The entire cycle would easily have taken a year.
You are not going to find any sizable player who will agree to immediate payment. Even getting someone to agree net 30 can be pulling teeth from time to time.
This war was fought decades ago. Just-in-time production won, and it was a decisive victory. This chip shortage is rough, but nowhere near as rough as it would be if we weren't doing things the way we are right now. Everything that has happened has happened for a reason. Attempting to disrupt this will put you in way over your head in ways you couldn't imagine.
> Maybe the real lesson of the whole thread is to require customers to pay in advance with a non-reversible wire transfer
Not so easy. This is particularly true as you start to get into higher dollar amounts. Also, it tends to be far more common with international orders than with domestic business. I can say that nearly 100% of our international business was prepaid. Sadly, during the 2008 downturn, all business came to a halt. There were very we places where you could find income that could sustain the prior state of business.
In the case of the the five million dollar contract I mentioned, we did get a $500K deposit with the order. Well, the $500K was spent on components pretty much as soon as it hit the bank, within a week. It's very hard to escape something like what happened in 2008 if all your cash in in a warehouse filled with parts and product you just can't sell.
If you can find a customer who will pay in advance on product with (reportedly) 40+ weeks lead time, then you've found a customer who will probably be insolvent by the time you ship
This is great. Thank you. This is like flippantly suggesting we all just drive on the other side of the road. Genius. Ignoring all the complexities involved in getting such an endeavour to happen.
