Virtual Creators, Inc. (Hardware Manufacturing)
Virtual Creators is a hardware startup seeking to expand its business. The Company sells their products in bulk orders to both online and brick & mortar retailers. They manufacture overseas in Shenzhen, China and recently switched to a new, more experienced manufacturer in the region. This manufacturer doesn’t have a preexisting relationship with Virtual. As such, they do not offer trade credit and require payment as soon as the goods arrive at the U.S. port.
Virtual Creators maintains gross margins of 40% at wholesale to their retail buyers. Unfortunately, the retailers pay on net 60 day terms after receiving the product. In order to finance its supply chain, Virtual relies on accounts receivable factoring to advance cash upfront as soon as orders are received by its retail customers.
In the exhibit below, the Company avoided a cash deficit of $120,000, and paid its new manufacturing partner on time- starting the relationship on a positive note. Working with a factoring company, Virtual was able to turn a cash deficit of $120,000 into a cash surplus of $7,500. And with a 2x growth in orders, they were able to take on new orders without issue, maintaining a cash surplus throughout fulfillment.