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Manufacturers take a stand to deliver on lead times

By John Hamilton

[August 19, 2010]

Many manufacturers who survived the lowest point of the recession with depleted inventories, reduced capacity and tight cash flow now have another challenge—rising backlogs of orders. They’re finding that the release of their customers’ pent-up demand is a good thing, but only as good as their ability to deliver.

Of course, this is less of an issue for those companies with access to growth capital. For others, though, the economic turnaround is not yet solid enough, or they are unable to persuade their banks to release additional credit. Meanwhile, the orders are starting to come in …  

It may be counter-intuitive, but some manufacturers have decided to take a stand, and establish new payment terms with their customers that help them deliver on these new orders.

Consider changing payment terms to Cash With Order. Doing so can be scary because you don’t want to risk upsetting customers, but perhaps you could introduce this to a small segment who are relatively well-capitalized. Inform them that the reason for the change is to improve delivery times, and that it is temporary. Communicate directly with customers who would be affected by this new direction and, of course, be flexible where needed. 

I know one firm that sent a letter announcing Cash With Order to about 25% of its customers and raised over $150k in two weeks. Not bad in a tough cash and credit environment. 

Would you take a similar stand with your customers? What other strategies have helped you to deliver on time?

John Hamilton is Vested for Growth's Managing Director and the New Hampshire Community Loan Fund's Vice President of Economic Opportunity. More Community Loan Fund blogs.

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