I have a corporate customer who sells promotional materials. They requested a bid on 100,000 dog tees. I submitted a bid and it's between me and another company. My supplier is located in Canada and they have a factory in China. This would be a special order based on the specs my customer supplied. I'm just the middle "man" in this deal.
What documents (contract?) are typically required for a deal this big? What percent down payment would be appropriate for me to ask the customer for--or the Canadian supplier require from me? What about the balance due once the order is delivered. Should I require they sign a promissory note? What terms need to be specified?
Thank you for any information you can supply. I don't want to look like the rookie I really am!
Personally first thing I would do is get everything in writing from your suppliers, since you will be hands off mostly, and just a middle man. Find out exactly what will happen if the order runs late or incorrectly, and who is responsible and how much. What if your client is unhappy with a small percentage of the tees, at 100,000 pcs...even a 2% scrap rate is 2,000 tees.
Especially if your dealing overseas, timeline, will definitely get skewed on something this large....Especially a special order item.
Cover all of you bases in writing.
Once very satisfied you will be safe in case it blows up on the overseas end, cover your client end. Do you currently have credit terms with them, or is this your first transaction with them? Is there any chance they will fold up shop during this deal, or will dispute anything?....are they a Coca-Cola, or a Bob's Cola Co. - Ask them what their standard practice is on Purchase Orders they cut over X amount of dollars.
Firstly talk to their accounting dept, and find out their standard terms, and how flexible they are....Most Big Corporations will simply cut you an official purchase order and are standard net30/60/90 regardless of what you demand, and unless you are dealing with a very lenient Buyer they usually stick to their standard procedures...and if you ask for anything else it may compromise the deal.....it sucks, but it really depends on who is placing the order.
Just get everything in writing...on both ends, maybe even have a lawyer look it over, a lawyer fee is peanuts compared to getting burned on 100,000 custom shirts.
Drew gave you a good start. To sum up: be very, very careful. Check everything. Assume nothing. Read and reread everything on any PO's.
No supplier is going to accept that size order, without up-front money. That can get you killed on cash flow. Your only true protection is to get at least the up-front money from the customer, an amout equal to all of your expenses when delivered and then you can take a chance on waiting for the rest.
In the old retail days we made some nice money on some really big orders. We also walked away from probably half of our opportunities because the upside potential was not worth the downside risk.
Miss an order and you miss profits. Mis-judge the wrong order and you can go broke. Only you can truly judge.
I have an idea that if you know these people and you trust them, then I would get atleast 50% down. If you do not know them I would get 100% down and make sure you have a cleared and solid payment before you order the first piece.
Ernie
Thanks for the great information. I hadn't thought of a scrap factor. The idea of having an attorney look it over makes good sense too.
Just to understand how this works, would it be customary for my client to make a downpayment and then when the shipment arrives pay the balance? What percent downpayment do you think I should ask for?
I see you are in Milwaukee. I moved here from Wauwatosa about 5 years ago.
Small world.
small world indeed, It would be in your best interest to get as much as possible up front, like BigBear said the supplier will want money upfront as well. Best to get all you required expenses in hand and use that to negotiate your terms with your client...
If your supplier wants 100% on delivery and the customer only puts up a fraction of that you'll end up footing the difference.
Generally on most jobs, we require 50% deposit, and remainder upon delivery...which usually covers the costs, and is near a perfect transaction...only if we can get close to 50 point margin on printed apparel...(hard to do), but that really turns into a grey area when the quantities get that high...
It's like trying to get a big margin on a Wal-Mart Order....would never happen...so they either have to be reputable, or willing to provide a substantial deposit, to get the ball rolling....
Talk to their accounting department first...I'm sure they've got plenty of procedures...big corporations always have an abundance of them.
you can also do up contracts with a notary stamps with asset-security and get the money in full or partial payment instalements deposited/placed into a trust account where you would also pay-out from etc...
in a sense you are just a brooker for this deal.
promissory notes mean nothing really. Its just ink on paper.
I think what I will try to do is have an attorney draw up the documents and set up a trust account. Then require that my customer deposit 100%. On the supplier side, I will also have the attorney draw up a purchase agreement. Once the order is placed, a draw will be made from the trust fund for the downpayment with the balance being paid upon delivery. I think that sounds reasonable.
Wow, you guys were great. This all came from your ideas.
promissory notes mean nothing really. Its just ink on paper.:
Too true. Reminds me of the old adage, "Promissory notes and contracts are just to refresh an honest person's memory". Cash is King.
The only thing more insubstantial than promises to pay, is the one that goes along the lines, "give me your best, cheapest price on these few because I'm going to buy ___________ (fill in a ton, a lot more, thousands, etc.)"
Downpayment or Promissory Note? 
No More Naked Dogs!
