Contract Fulfillment and Purchase Order Fulfillment are both a race against time. Your reputation and your profits are on the line here so be prepared.
Ideal Circumstance: You have open terms with your supplier and possibly a bank line to support covering labor, etc. Hopefully the customer pays before the bank line is drained and/or the supplier’s open terms run out with you. Otherwise, your credit and availability for the next contract can be jeopardized!
Collateral or Credit Backed: You have assets or excellent credit that can be leveraged or transformed into cash so that you can fulfill the need and complete the contract. What types of collateral are used here?
– Credit History is solid and can sign for a loan
– Property is owned that has a low LTV
– Equipment is owned that is not encumbered by a loan
– Account Receivables are available that are current and there is no loan in place
Non-Collateral Backed Circumstance: In this situation you lack all of the pieces to access cash or working capital. HOWEVER, you have the contract or purchase order in hand. What is important here?
– The customer is very credit worthy
– Your company has no liens and/or encumbrances
– The product does not need a significant amount of alteration to be delivered
– The order is contracted to be uncancellable if delivered within terms
Consider the above, particularly before you make a commitment. The clock starts ticking once you make a commitment – if you are not prepared to fulfill your contract, you are in trouble.